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Stop Loss - Introduction Stop loss is selling out of losing position when it is deemed to have little chance of turning around profitably or that when an options trader's predetermined loss limit for that trade is stock option trading terms stop limits. Sounds really simple and straight forward, right? Simply sell when things are not looking good for your position. Fortunately or unfortunately, in options trading, there are many ways of performing this action of stopping loss.
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What Does Stop Loss mean? The term "Stop Loss" simply means stopping a position from losing more money. That is a stop loss action. Sounds pretty straight forward until you consider more customized actions such as setting your stop loss point based on the price action of the underlying stock instead of the options stock option trading terms stop limitsallowing the broker to automatically track and sell the options position only when it pulls back a certain amount from its highest price.
Options trading stock option trading terms stop limits truly the most versatile way to trade in the world not only due to the fact that options are the most versatile trading instruments in the stock option trading terms stop limits but also due to the fact that options brokers have come up with so many advanced, customized solutions for entering and exiting options trades and that includes many advanced and customized ways to stop loss.
In general, stop loss in options trading can be "Stock Price Based" or "Options Price Based" and they can either be manually or automatically executed. The Simplest Stop Loss Method in Options Trading As you can see from above, stock option trading terms stop limits are many ways of executing stop loss in options trading but if you are executing simple Long Call or Long Put options strategy, there is a way to ensure stop loss, losing only a maximum of your predetermined loss amount, right from the onset of your trade; Use only your intended stop loss amount of money for the trade!
When you buy options in a Long Call or Long Put options strategy, your maximum loss is limited stock option trading terms stop limits the amount of money you use in buying those options. This means that in the worst case scenario, the options you bought expire worthless and you lose all the money you use toward buying them, nothing more.
As such, if you use only as much money as you are willing to lose on a single trade, you can never lose more stock option trading terms stop limits that amount, effectively, putting on a "stop loss" for your portfolio right from the onset.
As you are day trading, you decided to monitor and execute this stop loss policy manually. As you are day tradingyou decided to monitor and execute this stop loss policy manually. You feel that it is time to sell right away before things get any worse.