Is it possible to place a stop order on an option?

As with option trading platforms, futures exchanges do not accept stop orders on electronically placed options. Some open outcry execution brokers might be willing to take the order by phone for execution in the trading pit, but in general, stop orders on options are a thing of the past. That said, even if it were possible to place stop orders on options, it isn’t generally a good idea.

On the surface, having the ability to define approximate risk via stop order placement, similar to the way a futures trader does, is an appealing idea. Nonetheless, whether you are trading long or short options, the practice works much better in theory than it does in reality.

By definition, a stop order becomes a market order once the stated price becomes part of the bid/ask spread (bid is defined as the price at which you can sell, and ask is defined as the price at which you can buy). In other words, the order is elected once the price of the option, as determined by the spread between the bid and ask, reaches the stop price. Upon election of the stop order, the trade is executed at the best possible price available.

Continue reading about stop loss orders on options...

Futures and Options Trading Booksby Carley Garner

What People are Saying about Our Commodity Trading Books

Choosing a Futures Broker and Brokerage Service

Full-Service or Online Trading?

The decision to trade online or through a full-service commodity broker will undoubtedly make a large impact on your bottom line.

Learn More

A Fair Commission Rate vs. Low Commission

To look at commission rates objectively, we must understand the background of the futures industry and how brokerages accept risk for fees.

Learn More

Choosing a Commodity Brokerage Firm

Deciding on a commodity brokerage firm is a significant decision and shouldn’t be taken lightly. Not all traders and brokers are compatible.

Learn More

Choosing a Futures and Options Broker

Most traders in search of a futures broker are concerned primarily with trading platforms, commission, and quality guidance.

Learn More

The Truth about Futures Commission

The goal of futures trading should be to MAKE money, not SAVE it! Discount commodity brokers cut corners that cost their clients time & money.

Learn More

Commodities via Futures or ETFs?

A key difference to trading commodity futures over ETFs is leverage, but there is more to discuss, such as taxes, market hours, and efficiency.

Learn More