If countries are nuking other countries I don't think where your stop is should be your main concern. I could never picture myself saying, " oh man North Korea just nuked Japan, thats such a tragedy. Millions of people are dead. Oh wait, where is my stop on my 2 lot". And, if they nuked the cme or cbot, the USA is under attack by nuclear weapons. So in either of these situations your stop, profit, whatever means absolutely nothing.
I have traded thru several "fat finger" events, all in my favor or I was idle by pure random chance. One ER trade went -15pts down and +15pts back up in less than five minute's time. I was short and caught most of that drop, also by random chance. Had stepped away from the screens to cook lunch, took a quick peek in the office (off kitchen) and saw prices off the charts. Had I been long, stops would have slipped several points. * Got blown out of a ZB trade for one full point against me on some Greenspan utterance back in late 2003. * Traded thru two surprise interest rate cuts, Jan 2001 and Apr 2001. Got pounded on long OEX puts first time, bought SPX calls literally minutes before the second event when noticing 1,000s of atm and slightly otm front-month SPX call options clearing. * Was long five SPX puts, about to close them for net loss on 9/11 morning. Bought them for $1,700 each and they opened at $8,000 each following week, just before expiry would have made them worthless. * I know a trader who lost $1mil in the bond pit during first Iraq war invasion, 1991. Futures prices were trading 1.5 full points wide in the pit as news broke. ** Eventually we will see something happen to shock the markets. Act of war, assassination of key leader, environmental disaster to hit key city like L.A. or NY, London, Tokyo, etc Bottom line is, never trust your presence in a chair OR stop orders resting in the system to exit in timely fashion every time. Always trade with ability to withstand extreme slippage against your position, and everything will be fine.
If you are affraid of bad news, play only the short side. If you think that the market can move quickly both ways with the same chance (debatable) then your chance of getting caught in a good move is also 50%... But yes, generally you are trading with too much leverage/capital if such a move could wipe you out.
Using anything other than a stop market for a protective stop is dangerous. If we ever have another 911 type event you will be doomed using a stop limit on a day like that. Forget getting slipped/skidded, worry about account blow up and becoming an indentured servant to your broker!
Two of the most brutal instantaneous moves in the past 8 years have been to the upside. I'm talking about the Fed's late session ease in Oct/98 (the LTCM/Asian rebuttal) and the rate move on January 3rd, 2001. Each time ES moved 50 or so points higher in under 3 minutes. I do agree though that at these levels the chances of a sudden 5 or 10% up move are slim. Holding a "protective hedge" of options is difficult. If you're long OTM opts they're not going to really "kick in" until you'd be stopped on your futures anyways and the erosion of ATM's make it an expensive insurance policy. Without doubt an assassination, a surprise rate hike or U.S. terror attack could take the indices down 5% (the first "limit") just on cascading stops. Heck the "mini" crash in Oct/89 was on the seemingly innocuous news of the breakdown in the UAL employee buyout. Spoo's busted 10% in the last two hours.