First off I'm not major player, just a small time options trader. Since my account is small, I watch every penny and work hard to limit my losses , often at the expense of big gains. But my strategies keeps my account healthy. But for stock traders with lots of cash, here is a strategy I think may be good. Instead of taking a protective 7-8% loss on a position as most trading manuals suggest, if the position moves 5-6% against you sell a deep in the money leap. For example: Lets say you had bought GSF and it had dropped on you. When the stock was at $76.50 the spread on the jan 09 leap with a strike price of 50 was $28.70 x 29.60. You can usually split the spread and execute at the model price, but even if you just sold at the bid of $28.70 you would now be in this position: Received $28.69 Strike price $50 total : $78.69 So you if the call ever gets exercised against you, you get $78.69 instead of selling for $76.50. Plus more than likely the stock will eventually turn around before Jan 09 and you can buy your short call back at a cheaper price and keep the stock through the run up. If you really want to protect yourself, in case the stock drops below $50 you could have bought a Jan 09 50 put at the ask for $1.45 That gives you $78.69- 1.45 = $77.24. That is still better than the $76.50 and since you are long a Jan 50 put, if the stock starts to go up, short a 45 put against it and recoup some of that $145. If anyone sees a flaw in this scenario I missed, I'd appreciate the comments.