How To Set Stop Loss In Options Trading

What are stop loss orders and how to use them?

A finish-loss order is a buy/sell lodge placed to limit the losses when y'all fear that the prices may move against your trade. For case, if y'all accept bought a stock at Rs 100 and you want to limit the loss at 95, you tin can place an order in the arrangement to sell the stock every bit soon as the stock comes to 95. Such an society is called 'Cease Loss', every bit you are placing it to stop a loss more than what you lot are ready to take a chance.

There are 2 types of Stop-Loss orders:

ane. SL guild (Cease-Loss Limit) = Price + Trigger Price

2. SL-M lodge (Stop-Loss Market) = Only Trigger Toll

Instance 1 > if you take a buy position, so you will keep a sell SL

Instance 2 > if you have a sell position, then you will continue a buy SL

In Instance ane, if you accept a buy position at 100 and you wish to place an SL at 95.

a. SL-M order blazon - You will identify a Sell SL-M order with trigger toll = 95.

Here, when the price of 95 is triggered, a sell market place guild volition be sent to the exchange and your position will exist squared off at market price.

b. SL order type - You will place a Sell SL society with price and trigger price. Since your guild needs to be triggered first, the (trigger price ≥ price.) Here, this order type gives you a range of the Stop-Loss.

Let'due south assume a range of Rs 0.10 (10 paise). Hither, you tin continue trigger price = 95 and price = 94.ninety.

When the toll of 95 is triggered, the sell limit order is sent to the commutation and your order will be squared off at the next available bid to a higher place 94.ninety. So, your SL society may get executed at 95 (or college) or 94.95 but not below 94.90.

The disadvantage of this society is that if the market falls steeply, then after 95 is triggered and before the Sell Limit club of 94.90 is sent to the substitution if the stock cost is already below 94.xc, then your Stop-Loss order will still be open and your losses could be much college.

You will have to utilise your discretion whether to use SL or SL-Thousand depending on the market scenario.

In Instance ii, if you lot have a sell position at 100 and you wish to place an SL at 105.

a. SL-Thousand order blazon - Yous will place a Buy SL-Thousand society with trigger toll = 105.

Here, when the price of 105 is triggered, a buy market place social club will be sent to the substitution and your position will be squared off at marketplace price.

b. SL society type - Yous will place a Buy SL order with price and trigger price. Since your order needs to be triggered first, (the trigger price ≤ price.) Here, this order type gives y'all a range of the stop-loss.

Permit'due south assume a range of Rs.0.10 (ten paise). Hither, yous tin keep trigger price = 105 and toll = 105.10. When the price of 105 is triggered, the buy limit lodge is sent to the exchange and your order volition be squared off at the next available offer below 105.10. So, your SL society may get executed at 105.05 or 105 but not above 105.10.

Alternate use of SL guild:

Since Sell SL orders are used above your buy price and Buy SL orders are used below your sell price, you can use these order types to Purchase above LTP (Concluding Traded Price) and Sell below LTP.

i. To purchase above LTP, yous can place a Buy SL order with the price at which you want to buy.

2. To sell below LTP, you can identify a Sell SL order with the price at which y'all want to sell.

Here is the Kite Tutorial on Stoploss orders and hither is the Kite User Manual .

Note

NSE has stopped supporting SL-M guild type for options from Sep 27th 2022. To apply Stoploss-limit(SL) society equally Stoploss-Market(SLM) see How to use Stoploss-limit(SL) order like a Stoploss-Marketplace(SLM) order?