Stop Loss vs Options

Discussion in 'Risk Management' started by traction, Jun 16, 2020.

  1. traction

    traction

    If day trading the /ES using stop losses, how likely is it that it gets blown through on say bad news and I get filled at a drastically lower price?
    In this case is it better to trade SPX credit spreads?
     
  2. Always a possibility if the news is a big enough shock, but with the volume traded in the ES not "likely". (I can't think of one except for overnight holds through the weekend. Solution to that is to go home flat.)
     
    traction likes this.
  3. The amount you could lose is maxed out (circuit breaker)
     
    traction likes this.
  4. Theoretically, even that may not limit the loss.
     
  5. you said day trading so rth. no you wont get any crazy fill with es one of the
    most liquid securities on the planet.
     
  6. Turveyd

    Turveyd

    Interesting on Option, buy your 3% risk stake in NQ Calls, they might swing to Zero value ( SL hit ) and then come back to profit before expiry, where as once SL hit game over you've got a loser.

    Just checked Prices NQ Sep Calls 9500 $877 * 100 - $87,700 cost that's a lot to risk, billionaires game only.

    Unless I've cocked math up ??
     
    Sekiyo likes this.
  7. traction

    traction

    Was thinking more of SPX spreads but its now obvious that the /ES is better suited with its liquidity and lack of greeks.
     
  8. traderjo

    traderjo

    So your question is which is better
    A) Go long / short on ES Futures with a SL ( I hope you know You can;lt trade the SPX as a direct closes is ES futures or SPY ETF )
    Or
    B) Instead go Long CALL or PUT...spreads on ES ( by the way there are are options on ES Futures directly so not sure why you mention SPX options? although SPX option spreads can be considered)
    Each has advantages and disadvantages
    Turveyd mentioned them ( although he gave NQ example)
    With options when closing a profitable position Market maker spread could be an issue !
    C) choice could be LONG CALL or PUT options directly no spreads
    If things don;t go your way in case of B and C) time is against you
    Paper trade and see if you see liquidity ( Liquidity in ES futures should not be an issue)
     
  9. imjohn

    imjohn

    I day trade the ES using stops and targets. Out of the last couple thousand trades, the vast majority of trades terminated at the stop level, a small percentage incurred 1 tick of slippage beyond the stop, and a very small percentage incurred 3-4 ticks of slippage, but that is quite quite rare and usually just occurs during times of heightened volatility (e.g. Feb-March 2020, Dec 2018, Feb 2018, etc.).

    I rarely trade outside of RTH, so can't speak to those hours, but for RTH, to avoid unnecessary slippage, my suggestion is.. do not hold positions into FOMC announcements (14:00 ET), and oftentimes, there is a small burst at 15:50 ET, so if you're holding a position at 15:49 and price is hovering near your stop level, it may likely spike a couple ticks beyond your stop at the 15:50 spike. Outside of those moments, I never worry about slippage.
     
    traction likes this.
  10. Nicolem

    Nicolem

    For those who are active with day trading, stop loss should always be their choice. The instability of day trading is known by all and with your stop loss you can prevent getting indulged into a huge loss. It will help by stopping your loss after a specific value, so you always stay in the race and don’t lose more than you can afford.
     
    #10     Jun 23, 2020
    rb7 and traction like this.