ib trailing stop on options

Discussion in 'Order Execution' started by emk662, Sep 7, 2020.

  1. emk662

    emk662

    To those who have knowledge in IB TWS, what will happen to the trailing stop on stock options? The stock options are often illiquid, and do not have a market price. If the underlying stock is down $2 from high, and I like the system to sell the call option, is the trailing stop order on option is the right way to do? Thanks.
     
  2. guru

    guru

    This isn't related to IB TWS or any other broker.
    Almost no one uses hard stops on options because, as you suspected, they aren't useful.
    And options are self-hedging bets limiting your losses, like bets in Blackjack, so you don't need to limit them even more. Try using options or option combinations that are full/complete bets, allowing you to lose the full amount. You can still exit manually, either after specific time or other conditions, but if you need stops then you may not be using options properly.
    (you can use the underlying stock/shares to hedge, but this may be difficult if you don't know this already, and again this also doesn't help with using stops on options)
     
    Last edited: Sep 7, 2020
  3. emk662

    emk662

    guru, last week the stock market has sharp drawdown. I wish I have entered trailing stop on my long call stock options that is used to substitute stocks to speculate.
     
  4. guru

    guru


    I also wish that I could play Blackjack and as soon as someone else smiles then I could take half the money back. But this is not how it works. Everyone can wish to lose only a part of their bet.
    Calls are bought specifically to limit losses, so you don't pay the full price of 100 shares, but only small amount that is the bet that you want to make. For example instead of spending $34K on 100 SPY shares, you can buy some Call for $500, and this is your limit/stop. You can't lose more than the $500. But if you're spending $10K on your calls then your problem is risk management, not trailing stops. Do not walk into a casino and make bets that you cannot afford to lose...

    Though I agree that trailing stops on options would be nice if they could work. They aren't reliable due to liquidity issues you've mentioned.
     
    Last edited: Sep 7, 2020
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