We don’t use that for options for several reasons. One is the larger spread that you have to overcome. If you calculated 8% from your buy point, a big chunk of that could be eaten up by the spread between the bid and the ask. We prefer to use a loose 25% loss cutting rule, but because the option market is a bit wilder and looser than stocks alone, we will let an option fall below 25% at times. We use pre-set stop losses, but we do so mostly with very liquid options, i.e., well over 100 open interests. Otherwise, if you put in a stop loss order on options that are not very liquid, you get jumped over and taken out at a lower level. A stop limit might work better, but you have to have a trade to activate it, and again you could be passed right over. Thus we prefer very liquid options positions. If we have a long term option and we are getting the right price/volume action, we will ride an option position below 25% of the price, but we never let them go below 50%.
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