Hey, I'm looking at setting up stops on my open futures-options so I don't have to watch them like a hawk. Would prefer to spend my time on the beach or riding my bike. I trade primarily ags & grains, some of which are only pit-traded. What would be the implications of setting up stop-limit orders vs. stop-market orders? What are the chances of my limits being ignored completely in dramatic market movements like we've seen in rough-rice or cocoa in the past couple months? I'm thinking that stop-market orders would probably be best? Set right outside of support/resistance trend-line?
The tough thing about using stop-orders with options in open-outcry markets is that the broker may not get to your contract month and strike price quickly enough if the underlying plunges or skyrockets. If you're using a stop-limit order, you'll seldom ever get filled at your limit price unless the market somehow quickly retraces AND the broker is aware of your order in the deck. In order to minimize slippage, trade the slightly-out-of the-money, active-month strike prices. You may want to consider trading futures instead.
I can only speak to the bean & corn option pits (the only ones I've traded), but both are very deep & liquid pits, and you would be OK with stop market orders, while limits might get you skipped as often as not, depending on how much leeway you provided between your stop & limit. In those pits, it frankly has almost as much to do with who your broker is than anything else. As for your examples of rice & cocoa, don't know about cocoa, but rice is pretty much limited to a couple of guys willing to make a market for commercials (there isn't even a rice pit), there really isn't any option or speculative activity at all.