Hi,
I Understand, We can’t place SL-M order instead we need to Place SL-L order.
SL will be executed for most favorable between trigger price and Limit price.
My doubts are
In BNF huge rallies, being a SL-limit order, there is a chance of SL jumping.
What should be best suggested spread for Trigger price and Limit price.
I assume, If it is very small chances of SL jumping is higher.
What if intentionally if I keep trigger price and limit price spread very high as anyway system is going to execute more favorable way.
Example : Say for a sell leg i want to exit at SL of 100, I will keep trigger price, 99.9 and Limit price as 200. So as soon as it triggers at 99.9 it will execute at 100 or 100.5 or most favorable. in this way can we ensure SL triggering and avoid jumping of SL ???
Note : this is specifically for BNF/Nifty ATM and OTM strikes… Illiquid stock options or ITM options am not going to touch also .
We can use Stop Loss limit order like a SL (Market) order provided we keep the spread bit higher.
Basically, The farther the limit price from the trigger price, the lesser the chances of your limit order going pending, but higher the potential impact cost.
This article covers your very valid doubt in detail with examples
In SL-L order type trigger is greater than limit price for buy position and vice versa. And in volatile market SL-L trigger and limit be wide enough to excute order otherwise it could jump the trigger and limit and position will be there, showing change in LTP and with moving pnl. Most of broker exits position if margin get down to 80% whereas this could be large as 20% in some other broker . Make sure to check this on your trading stock broker.
Thanks. If we have to quantify, Considering BNF ATM/OTM liquidity in current weekly expiry, 1% spread between Trigger price and limit price will ensure SL order execution. your views please.
Here you can see that price jumped more than 1% of the last traded price . **note that there can be price reverse or sometime not.
If you have long @25 and SL-L at @24-@23.76 acc. to 1%rule and price reached to trigger and seek for counter trade,which means there should be specific buyer for squaring off or making sell position and vice versa.
OTM contract whose expiry is NEAR , then its SL will be wider as IV on contract tend to be volatile generally which to be in mind thay premium could be decrease with double rate at expiry time . You would check option greeks for this too.
So there should be buyer and seller for squaring off long and short positon respectivily.
Yes. Completely agree on this point.
But My question is, To avoid SL Jumping, as we are placing SL-Limit order, What is best pratice of spread to be maintained between Trigger price and Limit price ?
Availability of counter part buyer/seller is it can be achieved for a retail trader of 10 lots qty considering BNF liquidity ?
In this example only if we take, Instead of keeping trigger and Limit price same conventionally, ~25 paise spread is being maintained between Trigger and Limit.
BNF tick size is 5 paise, So, This ~25 paise Spread will it avoid SL jumping ? this is my question.
If not what is suggested spread ?
I don’t recommend OTM especially if you want to trade it don’t take deep OTM as some day it will convert 2rs into 200rs during expiry date where volatility is high but most of time it expire worthless means that you will loss whole premium and second thing trade OTM up to tuesday where gamma and theta generally not in favor of option writer but wednesday and thurday should be avoid for deep OTM and don’t take trade after 1:30 pm as I have seen that after this time market move fast, this will gurantee that spread in otm are wide enough to make loss, if trade goes wrong.
85 paise in low volatility is enough as you can get price anywhere below that stop limit. As I said avoid high volatility day .
It would be better if you trade ITM upto 3strike price (beyond it be as per risk ) ,ATM, OTM(4 strike price on friday and monday, 2 strike price on tuesday, 1strike price on wednesday upto 1 PM. Rest be ATM or ITM. Generally at these strike price there will be minimium of 0.05 spread in order book.
