The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about – Can you use a stop-loss as your position-sizing metric? When a lot of people ask… And I get this question a lot is, “Kirk. If I'm getting into a trade and maybe I want to trade some particular index or product, can I just use a stop-loss order as a means to protect the position size of the portfolio?” And so, an example of this would be is if they got into a short premium trade or a credit spread trade that say had $10,000 worth of risk when you get into the position, but they might setup an automatic stop-loss to get them out of the position if the position loses $1,000 or some 2X premium or some doubling of Delta. Whatever the trigger is, they’re setting up a stop-loss that is before the “real risk” of the position. And on the outside, on the surface, this seems like a good idea. I get into this position and if it goes against me, my stop-loss is there to protect me. But the p