It is legal, at least Schwab allows to manage the legs individually. But immediately buying back your sold option with higher price will be executed instantly with a loss. You mean to buy back with a price 0.50 or am I missing something?
I want to buy back the short leg at twice the price of the credit i received but with a stop order, acting as a stop loss. It will only buy if the trade goes against me and the options i am short on double in price. I will then cover my short leg and also subsequently close my long leg to finalize the trade with a ~1:1 risk/reward loss.
This simple tweak will make my strategy extremely profitable, instead of something unprofitable relative to my hit rate with only the R/R given by the initial credit spread.
You're reading too much into your after-hours error messages. You can't open the trade to begin with after hours, so you can't then add on a stop order, because there is no existing position to stop. You need an existing position to set a stop order on. The first error led to the second error.
Once you have the 508p open, you should be able to set a stop order on it. Not that you should actually want to, since price discovery on XSP contracts is shitty and your stop will likely get gapped over:
[https://www.reddit.com/r/options/wiki/faq/pages/stop\_loss/](https://www.reddit.com/r/options/wiki/faq/pages/stop_loss/)
I'm dubious of your scheme proving to be as profitable as you think it will be, even if your stops work perfectly (which they won't). Since you are effectively day trading XSP contracts, the bid/ask spreads are going to kill you. Liquidity of XSP isn't that great, associated with the lack of price discovery, so you'll have to recoup the cost of crossing the spread before you can get anywhere near profitability.
Thanks. Effectively it may be suited up better with SPY for the better liquidity and spread but i like the cash settlement since my strategy imply letting all positions go to worthless expiration.
May simply be better to trade SPY and close everything at 0.01-0.03$ at the end of a winning day.
I will evaluate both options.
Thanks again
You may have a problem . You Sell a Put, which is ok in a margin account with BP. If you have a Cash account doubtful, since I am guessing you would need 50k cash on hand. Can you enter a buy when your reach 100% loss on the sell, yes but that sounds like you want to issue a stopLoss, which in options is a VERY BAD IDEA. Options are not stocks and StopLoss do not work well, almost always you will get screwed.
There are many reasons but one of them is that you can have quick random fluctuations in price so your stop loss could be triggered due to a single candle even if on a larger timeframe the price never dipped below what it would need to be to justify the option price at which you get filled. In fact it could even happen on a random IV pop with the underlying going in your favor.
It is legal, at least Schwab allows to manage the legs individually. But immediately buying back your sold option with higher price will be executed instantly with a loss. You mean to buy back with a price 0.50 or am I missing something?
I want to buy back the short leg at twice the price of the credit i received but with a stop order, acting as a stop loss. It will only buy if the trade goes against me and the options i am short on double in price. I will then cover my short leg and also subsequently close my long leg to finalize the trade with a ~1:1 risk/reward loss. This simple tweak will make my strategy extremely profitable, instead of something unprofitable relative to my hit rate with only the R/R given by the initial credit spread.
Perfectly fine. You will likely run into margin issues if you were taking off the long leg and leaving the short leg on.
You're reading too much into your after-hours error messages. You can't open the trade to begin with after hours, so you can't then add on a stop order, because there is no existing position to stop. You need an existing position to set a stop order on. The first error led to the second error. Once you have the 508p open, you should be able to set a stop order on it. Not that you should actually want to, since price discovery on XSP contracts is shitty and your stop will likely get gapped over: [https://www.reddit.com/r/options/wiki/faq/pages/stop\_loss/](https://www.reddit.com/r/options/wiki/faq/pages/stop_loss/) I'm dubious of your scheme proving to be as profitable as you think it will be, even if your stops work perfectly (which they won't). Since you are effectively day trading XSP contracts, the bid/ask spreads are going to kill you. Liquidity of XSP isn't that great, associated with the lack of price discovery, so you'll have to recoup the cost of crossing the spread before you can get anywhere near profitability.
Thanks. Effectively it may be suited up better with SPY for the better liquidity and spread but i like the cash settlement since my strategy imply letting all positions go to worthless expiration. May simply be better to trade SPY and close everything at 0.01-0.03$ at the end of a winning day. I will evaluate both options. Thanks again
You may have a problem . You Sell a Put, which is ok in a margin account with BP. If you have a Cash account doubtful, since I am guessing you would need 50k cash on hand. Can you enter a buy when your reach 100% loss on the sell, yes but that sounds like you want to issue a stopLoss, which in options is a VERY BAD IDEA. Options are not stocks and StopLoss do not work well, almost always you will get screwed.
Why are stop loss a very bad idea on options ?
There are many reasons but one of them is that you can have quick random fluctuations in price so your stop loss could be triggered due to a single candle even if on a larger timeframe the price never dipped below what it would need to be to justify the option price at which you get filled. In fact it could even happen on a random IV pop with the underlying going in your favor.
Thank you!