Comment on Stop Loss orders - Limit/Market

AG commented on 16 Jun 2014, 11:11 PM

Hi,
I am a equity trader. And wanted to trade options and my search for a cost effective broker brought me here. I have already downloaded and mailed my Ac opening form to you.
Now I have a query regarding risk management in options :

primarily I want to trade options on the buy side and my query is how to decide the stop loss ?

Suppose I see Nifty (at 7500) and feel it would go to 7700 and decide to buy OTM call of 7600 at say 20 (hypothetical). How do I decide the stop loss? Say if the underlying goes to 7400 I would quit.

So How do I decide the stop loss : Do I use the underlying price of Nifty as exit or stop loss and if so then how do I decide my risk per trade.

Basically if I buy a call at 20 and then how I decide the stop loss and target with reference to this price of 20 .
As I cannot tell how much the option will quote once Nifty touch my Stop loss of 7400. This makes risk management redundant or is their something I don’t know. Please clarify.

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