Explore Your Options  |  JAN 2011

Explore Your Options by Tom Gentile

If I’m trying to manage option position risk to reduce my maximum loss exposure, is it better to tie a stop-loss to the market price of the options or the underlying stock? Managed stops can be a good tool as they act as an extra layer of portfolio protection beyond our initial and known risk assumption if we’re dealing with a limited risk strategy. The question of exiting with a tighter managed loss based on the underlying share price versus the prevailing option market isn’t as clear-cut. This is largely up to the individual trader and his or her risk acceptance, as well as the strategy being employed.

by Tom Gentile