In situations where the market does not move in our favor, we can prevent substantial losses by the use of stop losses. A stop loss could be issued in a situation when our signal is in the profit and our system indicate a possibility of move against the currently profitable position. Furthermore, in some situations we may consider that it is safer to set stop-loss in order to protect profit. We will close out a position and take a loss when a trade was initiated in accordance with our signal but the value of the short option increased rather than decreased, reaching our "Suggested Stop-Loss Level".
We do not always provide "Suggested Stop-Loss Levels" at the same time we issue a signal. We may instead:
Note: An alternative way to protect the system from a big loss or to secure already profitable signal is by simply moving the "Suggested Exit" price to the level when the signal will be closed. In some cases, we may use both ways - our system may generate stop-loss and we may move the "Suggested Exit" price - by reducing the traded price range to the minimum when either Stop-Loss or the "Suggested Exit" is hit and the position is closed.
In some cases we may not state a "Suggested Stop-Loss" price when a new signal is generated by the following reasons:
Yes, a new stop loss could be set after a signal was generated and after an option position was initiated. The market is in constant change and what was bullish yesterday could become bearish today and opposite. If our trading system indicates changes in the market sentiment and we consider that it is better to close an options position in order to cut losses or protect profit we may set a new stop-loss (if it was not set when a signal was generated) or change an existing one.
Mostly, a stop-loss is issued to protect a gain or to limit a loss. In both cases we do it when our trading system indicates possibility of changes n the market sentiment and we consider that it is better to go in cash position.
At the same time, there could be a situation when when we expect just a short correction and we see the possibility to close the current position with profit and re-enter it again in a short period of time at better entry price with expectation for an additional profit.
In case when our "Suggested stop-loss" price is hit, we will close out our short options position at the stop-loss price. As a rule, we wait for a confirmation email from the online brokers who autotrade our signals and then send an email alert out that our short options position was closed at our stop-loss level.
Naked options trading is very risky - many people lose money trading them. It is recommended contacting your broker or investment professional to find out about trading risk and margin requirements before getting involved into trading uncovered options.