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Not having a stop loss trigger point at all, or having one but not having the discipline to act if and when it is breached, sadly is a very common, costly, and needless investor credit spread mistake. While employing the stop loss order on a good-till-cancelled GTC basis has the virtue of being a low maintenance process, I recommend not using GTC stop loss orders for option credit spreads.

A GTC order can be filled on the opening, i. This can happen because stop loss orders are triggered not only by a trade taking place at the trigger price, but also by a bid or ask order being placed at or beyond the trigger price.

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But when such orders get filled it means an investor victim has been knocked out of a trade that he should still be in based on the trading price level of the underlying. Yes, this means more order placement work, but it also means much less chance of unwarranted, teeth-gritting stop-outs that should not have occurred.

The bad news is that it is often not possible to find a bear call spread and a bull put spread in an underlying that are both fully conforming to the MIM entry rules at the same time… and it would obviously be a mistake to put on either spread if it were not conforming to the entry rules. Thus, we are shut out of the possibility of establishing what I call a one-step Iron Condor.

Happily, we can still end up with the same Iron Condor and its single margin advantage even if we put on the two requisite spreads at different times… even days or weeks apart. I call this the two-step Iron Condor.

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Consequently, we can establish one spread of an Iron Condor now, when it is conforming, and then the other spread at some future time when market movement has moved it into conformity with our entry rules. If you seek an ongoing, reliable approach to generating a market-based monthly income stream, the conservative option credit spread and Iron Condor approach should be high on your list of possible investment strategies.

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Advanced Option Trading: The Modified Butterfly Spread

Big rewards. Founder: SaferTrader. Credit Spreads: Managing Headline Risks. Option Stop Loss Orders? There Are Often Better Choices. Available both in physical book and e-book versions. Physical book version also a top seller at Amazon.

The 8 Worst Credit Spread Mistakes : 1. Too Little Net Premium The net premium on a credit spread is the difference between the price received on the short strike price option and the price paid for the protective long strike price option at the outset of the trade. Not Avoiding Earnings Reports Earnings reports relate, of course, only to credit spreads where the underlying is a stock. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance.

Supporting documentation for any claims including claims made on behalf of options programs , comparison, statistics, or other technical data, if applicable, will be supplied upon request.

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