Explore Your Options by Tom Gentile
If I write a covered call for a stock I
bought at 30.50, am I allowed to place
a stop-loss price, say, 27.00, to protect
it from further decline? What happens
if the stop-loss price is triggered?
Although one of the components of
a covered call is the underlying stock,
it is still a spread, since it contains a
combination of both a long and a short
position. Most brokers do not place
stop orders on spreads. However, you
can probably place what is known as a
contingency order, in which the spread
is sold based on the stock price alone.
If, for example, you decide that you
wish to sell the spread when the stock
hits 27, the contingency order will automatically
sell your spread at the price
you specify or at the market. But again,
this is up to each individual broker and
is something you should ask about.