Whilst there is Sl-M for index options, y not have SL-M for Stock options as well…SL at times does not work well if the range skips resulting in bigger losses.
is SL-M possible for stock options???
Please do it.
Dhiren
Most of the stock option contracts are extremely illiquid. In a SL-M, market order is fired when trigger is hit. This market order on stock options has caused huge losses to our clients because of the wide spread. That is the reason we have blocked SL-M and market orders on stock options. What you can do though is, place a limit order at a much higher/lower price or similarly a stoploss limit order with much higher/lower limit price. This will essentially act as market order and also give you a protection of the limit price mentioned in case liquidity dries up.
Stock Options are low liquidity products.
(Low liquidity is measured by the bid-ask spread difference along with the bid-ask quantity.)
Lets take the market depth of Cipla SEP 600 CE (CMP of Cipla Equity is 560.)
The lot size of Cipla is 1000. The total quantity shows bids for 59 lots and offers for 16 lots.The market depth shows the 5 best bids/offers. The best offer is at 6.65 for 1 lot. The 5th best offer is at Rs 9.20 for 1 lot.
What you see in the Market Watch is the Last Traded Price(LTP). Lets see the LTP of Cipla Sep 600 CE which is 6.25 as shown.
What many people assume is that Rs.6.25 is the Current Market Price(CMP) for which any desired quantity can be purchased.
If you placed a buy market order for 6 lots of Cipla 600 CE,
- If all the 6 lots were bought at Rs.6.25, you would require Rs.37,500 for this. But this does not happen according to the market depth.
- In actuality, if you placed a market order for 6 lots, the buy sequence would be 1 lot at Rs.6.65, 1 lot at Rs.7, 2 lots at Rs.7.5, 1 lot at Rs.8, 1 lot at Rs.9.2. This would cost Rs.45,850.
This is an additional amount of Rs.8350.
If you panic and place a sell market order for all the 6 lots of Cipla 600 CE immediately,
- The sell sequence would be 1 lot at Rs.6, 1 lot at Rs.5.65, 1 lot at Rs.5.60, 1 lot at Rs.5.30, 1 lot at Rs.5.10 and probably 1 lot at Rs.5.
This will only return an amount of Rs.32,650 back to you.
In totality, you will face a loss of Rs.13,200.
There are option contracts where liquidity is a lot lesser and the losses could be much more detrimental.
As Nithin said, Placing a limit order at a favourable price for your desired quantity for either buying or selling after studying the market depth is the best way to trade stock options.