What actually happens to a stop order when the market opens somewhere else
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The VIX went down Friday and a lot of people took that as the all-clear. |
It isn't. The VIX measures 30-day volatility. It can't see next week. The short-dated options can, and they're pricing more movement, not less, with the risk stacked toward Thursday and Friday. |
Triple witching Friday takes a pile of S&P open interest off the board in one morning. |
Here's why that matters if you're leaning on a stop-loss. |
A stop is an instruction to sell at the next available price. If the market opens far from where it closed, the next available price is wherever it opens. Your stop at $85 fills at $78. You thought you were risking $500. You lost $1,200. |
The traders who survive weeks like this don't rely on a stop. |
Their worst case is built into the position, so a gap lands them on a number they already accepted. |
Click here to see what replaces the stop-loss. |
To your success,
Don Kaufman |
P.S. Once you see it you won't set a stop on an options trade again. It's here. |
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