Stop-Loss FAQ

Why do you not issue a stop-loss for each new signal?

There are several reasons why we do not issue a stop-loss for each new signal:

1. We typically issue signals for options with long-term expiry dates (i.e., 3 - 6 months into the future);
2. Our signals are based on strong mid-term indicators; we do not want our stop-loss to be hit as a result of a short-term correction;
3. In trading naked options, the time factor is on our side. The longer we stay in a position, the greater our chances of success;
4. We never commit more than 5-10% of our investment capital to options trading. By limiting ourselves to this percentage, we are protected against a margin call, even if we are down 200%.

Can you set a new stop-loss for previously issued signal that was issued without a stop-loss?

Yes. The market is always moving and we analyze it on a daily basis; furthermore, if we see that we need to take a loss or protect gains, we may also set a stop-loss or change an existing one.

Under what circumstance do you issue a stop-loss?

Typically, stop-losses are issued to protect a gain or to limit a loss. We may have to cut our losses when our options are close to the expiration and showing a loss. On the other hand, if we are currently in a winning position and do not yet wish to close it out, we may choose to issue a stop-loss in order to protect our gains.

What happens when your stop-loss is hit?

If our stop-loss is hit, we will close out the position at the stop-loss price.

What actions you take under these circumstances depends on your risk tolerance. It is a personal decision each trader has to make: Follow our signals and stop-loss policies or use your own approach.

I received a margin call and have been asked to close a position; however, your system still has that position open. How can a trader follow your signals in this case?

As you know there are no trading systems that are absolutely perfect and fail-safe for all investors with 100% guarantees, particularly in short-term trading, and we can have a situation where we are in a losing position, while your broker requires that you close the position due to margin requirements. If we do not close the position, that means that our indicators show that a trend reversal is imminent and we believe that we will be able to close the position with a profit or at least a minimum of loss. Despite having had to close the position due to margin requirements, you may choose to close your position only partially or open a new position to participate in what our indicators show to be an imminent reversal in the trend. For the most part, in this type of situation (if the market moves in our favor), you will still be able to participate in the upside of what was once a losing trade.