Stocks & Commodities V. 24:7 (32): Explore Your Options by Tom Gentile
Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
Q: Can you explain what a trailing stop is?
A: To do that, first, I have to explain what a stop order is. A stop order is an order placed with a broker to buy or sell a security when a certain price level is hit. The stop can be used to limit losses from an adverse move in the position, or to lock in a profit. When used to limit
losses, it is sometimes referred to as a stop-loss order.
A trailing-stop order moves along with a favorable movement in the price of the security. Trailing sell-stop orders follow the upward movement of a security by a defined distance and remains in place as long as the security moves upward. Trailing buy-stops, on the other
hand, will move lower by a defined distance as the security price falls. The “distance” is often expressed as a percentage or a dollar amount.