I know some people who sell puts and calls and to protect themselves against losses, they will use a spread as their strategy. However, I was just wondering what the general consequences is for putting a stop/loss instead of using spreads when selling either a put of a call option?
As a general rule, "Let profits run, cut losses short". It's always a reasonable consideration to stop out when your option has lost 1/2 of its value. Risk management is an art... regardless of how you play it. (There is no guide to tell you, "this exactly how to do it".) One basic options strategy is to "take profits when your option doubles, stop out when your position loses half." (It's a "numbers game").
Never use stops on options, unless you’re experienced enough to not have to ask this question. You’ll get taken out with so many unnecessary stops and large slippage due to wide bid/ask spreads that you’ll never use stops again or you’ll use them rarely and only on highly liquid options. Only use mental stops, and/or take limited risk like you’ve mentioned with spreads. And usually it’s the various spreads where people may set mental stops, while exiting at a specific %profit.
Using stop losses on options is impractical for the simple reason that the bid and ask spreads are wide most times, even wider when market makers see you are trying to get out of a bad position. Remember Stop Loss orders become Market orders once, triggered. So, you will end up buying the option you sold back at the ask price which would be much, much higher than the price you got in premiums when you sold that option. So, a guaranteed losing trade. Much better to use a limit order to get in or out of options and just match the bid and ask price. You are never going to overpay for the premium and get out at your limit price.
I think that such a strategy is used to make traders aware of it, and tried to work just the same way at a loss. It's no secret that everyone wants to earn.
They aren't even the same idea. A stop would only work for a single call or put. I don't even know how you'd calculate them for a spread. A spread does not function as a stop. A spread is a risk mitigation strategy where you can exactly control whatever your exposure is to the market. For example, with a stop you can have slippage in a terrible market. In a fixed spread (for example a bull put spread) your maximum loss is fixed. It's more useful in my opinion to think of a spread as controlling a single risk parameter than something like a stop that will pull you entirely out of a market.
You can use a stop loss based on the underlying. Eg you buy a covered call. You stop weekend the underlying moves 10% against you. Doing that automatically is a bit harder