The trader lost money because the stock price went up in after market trading , leaving him and his broker no time to exit his position. Stop loss is of course, of no use as it will not get triggered.
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This is called as Gap Risk and it is unavoidable if one is in markets.Thats the reason for exchange to calculate span margins for F&O positions and mandate to maintain them but even these margins cant save traders or brokers all the times.
In India shorting of equities and carrying overnight is not offered by all brokers as it is very risky and also there is no trading happening beyond 4.00 pm (Post closing session for equities 3.40 to 4.00) in India. So the Gap Risk occurs only in the opening of next day.If only the gap up is so high the trader or broker ends up in a loss as in this case.
As one cannot avoid from all types of risks in stock markets but one has to manage them based on individuals risk aversion capacity to sustain for long term in markets.
If you do not want to end as a trader as in this case you can buy put options, but options has its own demerits.
Gap changes work both ways.
If you are long in an overnight position, a gap-up gives you profits.
One has to be sure if you want to carry over your position and that’s the way to protect your positions…
This is something very important to consider when you trade overnight positions, people do very often forget about Black Swan , but trust me they happen more often then you think, but nobody wants to listen or think about it why ? the same reason why most of the traders don’t truly accept the risk
What is the way forward?
Well your broker , your Market gurus will always tell you that this never happened , GTT is there , exchange will stop trading and bla bla because its not there problem but if you stop trading then its there problem so i will advise you to truly accept the risk according to your capital and then enter the positions accordingly.