Options Or Stops? by Joe Luisi
Options may cost less and give you more flexibility than outright stops. Hereís how to choose between options and stops and some ways of using both throughout the life of the trade.
Stops are essential, but they donít have to be orders to buy or sell stock or futures. Options are sometimes preferable to futures or stocks, due to their limited
risk:if you own them, you can only lose the cost of the option. Here ís how to go about it.
Once you take a futures position either buying or selling, you should place a stop to get you out of the market if your analysis turns out to be wrong. Typically, traders use a swing high or low as a stop point, or maybe a recent high/low, or lowest low/highest high of the last x number of days.
Some use a money stop, say $500. The only problem with a money stop is that if a market becomes volatile, the $500 stop may actually be too tight.