Stopped out at .65 when option is trading at $2??

[moral212]

Hi All,

New to T2W, not so new to trading and options but still clearly have a lot to learn. I'm posting this question as it seems crazy to me that this is possible. Several days ago I bought some SPY 190 puts for $.88 and had a stop loss at $.65. Over the past few days as everyone is aware things have been crazy and the trade became quite profitable. This morning I was stopped out and my trade liquidated, I could not understand why as SPY did nothing but go down. Called my broker and turns out this morning there were offers with a spread between $.15 and $2 for that option which triggered my stop . Again, that options ask was around $2.

Is this right? How is this possible and what is the point of using stops on options if this can happen?

 

[MasterOfCoin]

Welcome to 2TW.

Yes, this is right and can happen.

The ways to avoid this, depending on what your broker allows, are to place a limit order or define the spread yourself.

 

[moral212]

Welcome to 2TW.

Yes, this is right and can happen.

The ways to avoid this, depending on what your broker allows, are to place a limit order or define the spread yourself.

Thanks for such a quick response! Will not be using stop orders without limits again.

 

[MasterOfCoin]

Only too glad to help newcomers avoid some of the pitfalls in trading.

 

[ChrisDouthit]

How often you check in on your trades? If you’re checking in at least once a day you don’t have to use stops, just know your limits and what’s happening. However, if you’re not checking in daily stops are probably important.

 

[moral212]

How often you check in on your trades? If you’re checking in at least once a day you don’t have to use stops, just know your limits and what’s happening. However, if you’re not checking in daily stops are probably important.

At the moment I'm definitely not checking in daily but I plan on implementing alerts or simply using different options strategies.

 

[Windlesham1]

Why oh why are you trading American style options? On the index? That is nuts! Sorry butcheck you are trading the right instrument- and be aware that European style index options cannot be exercised early and can only be cash settled at expiry. You may of course trade in and out of them- so your put would be $$$$$$$$$ by now or you could have morphed into a put spread and got a credit. I have traded for 20 years and only ever use European style options- equity options in the UK are a waste of time anyway.