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what are the option stop (exit) orders with details?
Question By Meedo

what are the option stop (exit) orders with details?

what are the option stop (exit) orders with details?

Asked on 29 January 2009

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Answered by Mr. OppiE

Hi Meedo,

First of all, Stop order is a form of Exit order. Exit orders in options trading are orders you put on which tells the options trading broker when to sell your position. There are 3 kinds of exit orders and stop order is one of them. The other 2 exit orders are Contingent order and Trailing stop loss order.

Stop orders are basically price triggered sell orders that close your positions when a predetermined price is hit. Today, with the advent of the other 2 kinds of exit orders, stop orders are fast diminishing in importance. The main and most significant drawback of Stop Orders is that it is activated only when a specific price is hit. If the option should gap past that price, it could continue lower without triggering the stop order!

Contingent orders are orders that basically tells the broker to close your stock options position when the price of the underlying stock or the price of the options itself goes higher than or lower than a predetermined price. This is a much more advanced order than a simple stop order and totally overcomes the problem of the order not filling on a gap.

Trailing stop loss orders are orders that tracks the price of your options position and sells them when they pull back by a predetermined percentage. This is an extremely intelligent order for traders who wishes to let profits run and sell only when the price of the options position pull back by a predetermined amount, signifying the possible end of a trend.

As a matter of fact, I have only used contingent orders and trailing stop loss orders in my 13 years of options trading and never a stop order because the price of options gaps a lot. Different brokers may also have a different name for contingent order as some calls it conditional order. How contingent orders and trailing stop loss orders are placed also differs from broker to broker due to the different trading interfaces being used. You will need to refer to your broker for more specific details.


In conclusion, Stop orders, Contingent orders and Trailing stop loss orders are the 3 main kinds of options exit orders which all respectable options trading brokers offer. Almost all of these brokers classify contingent orders and trailing stop loss orders as advanced orders. These advanced exit orders allows you to exercise better control over when you wish to sell your position without having to sit in front of your computer whole day long. To learn about all the other options orders, please refer to our Types Of Options Orders tutorial.



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