Why should a stoploss be set using GTT when buying stock or index options?

Buying options can be the riskiest form of trading without proper risk management. When you purchase an option contract, your entire invested capital is at risk. The option premium can rapidly lose its value based on factors like moneyness, time value (theta), or other variables influencing option prices.

It’s crucial not to risk more than 2% of your trading capital at any given time when buying options. If you’re dealing with larger positions, defining and adhering to a stop-loss is essential. This practice significantly improves the odds of successful options trading. 

To implement a long-standing stop-loss order for your option positions, you can use GTT either at the time of buying the options or directly from the positions tab on CubePlus.

Setting GTT Stoploss When Buying Options:

You can set any stop-loss percentage for your order. For instance, if your option buy price is Rs. 80 and you set a 10% stop-loss, the stop-loss triggers at Rs. 72.

This limit stop-loss order ensures a sell order at Rs. 72 is placed.

You can edit the limit price from the GTT menu under Orders or from the positions window.

Exiting Positions or Cancelling Pending GTT Stoploss:

If you exit the position on your own without the GTT stop-loss being triggered, remember to cancel the pending GTT stop-loss order.

Important Note:

All GTT stop-loss orders are, by default, limit orders. 

For example, if the GTT is triggered at 72, a selling Nifty 16000 CE order is placed at a price of 72. In fast-moving markets, execution may not be guaranteed.

If a stop-loss GTT order is triggered but not executed, you’ll need to place it again for the next trading day.

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