🚨 I’ll be live at 2:30 p.m. ET with Alex Reid🚨
We’ll cover the recent CPI surge, the market fallout from stalled Iran peace talks, the SOX’s historic 14-day tear and more [tap to join us for Profit Panel]
The opening bell can stop you out before your position even has a chance to work.
Look, I’m going to save you some headaches right now.
My Profit Panel co-host, Alex Reid, and I share the same philosophy: Never put a stop on an option. And I know that might sound strange at first, but there’s a strong reason for it.
The biggest problem happens at the market open when you get a wide spread between bid and offer.
Sometimes the equity won’t move at all, but they’ll hit your stop on the option because it’s a totally different market. Within minutes, you could actually be up on the position if you hadn’t been stopped out.
I’ve seen times right at the opening bell where I’m supposedly up 200% on a put spread I sold, which is mathematically impossible. After a few minutes, everything settles and shows the real figure, something like 14% or 15%.
Numbers bounce all over the place at the open, and you’ll see wild readings that make no sense.
When Stops Can Be Useful
There is one situation where stops on options make sense. If you’re day trading something extremely liquid like the S&P 500 (SPY) or the Nasdaq 100 (QQQ) intraday, you can use a stop because the spreads are tight.
These products often have penny wide spreads, which keeps you from getting whipped around.
When I’m trading QQQ right at 9:30 a.m. ET in my 1K challenge, I use stops for that exact reason, the market is stable enough and the pricing isn’t going to blow out the way it does on regular options.
Smarter Ways to Manage Risk
When I’m not dealing with ultra liquid intraday trades, I use other tools to protect my positions. One of the most effective is setting a wait condition on the underlying stock.
Instead of watching the option’s bid ask spread, which can get ridiculous at times, you tie your exit to the stock’s actual price.
If the stock hits your level, the platform will sell your option. It’s clean and avoids getting shaken out by nonsense pricing.
I also rely on ‘one-cancels-the-other’ (OCO) orders for stock trades. These let you place a stop and a profit target simultaneously, and whichever order fills first cancels the other.
It’s a simple way to manage a stock position without babysitting it. Some platforms don’t support OCOs, so you’ll want to check yours, but when available they’re incredibly useful.
Bottom line: Use stops on stocks, skip them on most options, and lean on smarter tools to manage risk without getting chopped up by wild spreads.
👉 Click here to join Profit Panel at 2:30 p.m. ET on weekdays!
Geof Smith
Geof Smith TradingÂ
Follow along and join the conversation for real-time analysis, trade ideas, market insights and more!
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.Â
P.S. Hormuz, Oil, and the Gold Trap
Gold has been sending mixed signals lately.
In the past, rising global tension (especially around oil) has pushed gold higher as a safe haven.
But that’s not what we’re seeing right now.
Even as tensions build, gold has pulled back. And that’s where things get interesting.
So the real question becomes:
Is gold getting ready for another push to new highs… or setting up for a different move entirely?
Because from here, it could go either way.
- A renewed surge that challenges all-time highs
- Or a stall if factors like the dollar or rate outlook shift
If you’re unsure how to read this price action…
I put together a detailed Gold broadcast to walk you through it.
Inside, you’ll see:
- How gold typically reacts during geopolitical conflicts
- What tends to happen if tensions escalate… or suddenly cool off
- And whether this looks like the start of the next major move higher
No trading guarantees, of course.
But if you want a clearer view of where gold could be headed… and how to think about positioning…
Disclaimer: We develop strategies to the best of our ability, but we cannot guarantee a future return. There is always a risk of loss when trading. Past performance is not indicative of future results. Since 12/05/2024, the trading approach discussed today has published 60 trade alerts. All 60 have returned as winning trades, for a 100% win rate. The average return per trade, winners and losers combined, has been 16.88% on an average holding period of 9 days.
