The three units
| Expressed as | Triggers when | Behaviour as volatility rises |
|---|---|---|
| Points | The option price moves a fixed number of points | Effectively tightens — prices move more per unit time |
| Percent | The option price moves a percentage of its entry value | Scales with premium — looser on expensive options |
| Underlying points or percent | The index itself moves a set amount | Independent of option pricing entirely |
Points
Why it is not necessarily wrong
Percent
Underlying-based
When insulation helps and when it hides
Trailing stops
| Setting | Effect |
|---|---|
| Tight trail | Locks in more, exits sooner, more likely to be stopped by noise |
| Loose trail | Gives the position room, gives back more on a reversal |
| Trail to breakeven | Removes the loss once the position has moved enough |
What a stop loss cannot do
- It cannot protect against a gap. A stop is evaluated against the price when it is checked. If the index opens far away, the stop executes at the new level.
- It cannot guarantee a price. It triggers an order, and that order fills at whatever is available.
- It cannot help if liquidity has gone. Exiting needs someone to trade with you.
- It cannot make an unsuitable position suitable. A stop limits the loss on a position; it does not make an oversized one safe.
Choosing a value
Start from a reason, not a number
Choose the unit deliberately
Backtest once at that value
Run the plateau test
Decide the square-off-all rule alongside it
The short version
- Points do not adapt — effectively tighter in volatile conditions
- Percent scales with premium — can be only a few points on a far strike
- Underlying-based is insulated from volatility repricing, which hides vega losses
- Trailing locks in part of a gain; trail-to-breakeven removes the loss entirely
- A stop cannot defend against a gap, guarantee a price, or fix an oversized position
- Choose the value from a reason, then plateau-test it
Frequently asked questions
Points do not adapt to volatility, so the same setting is effectively tighter when the market is active. Percent scales with the premium, which can make it only a few points on a far strike. Choose knowing which behaviour you want.
One that triggers on the index moving a set amount rather than on the option price changing. It is insulated from volatility repricing, which can be useful or can hide a real vega loss.
It moves in your favour as the position gains and does not move back, locking in part of the gain so a profitable position cannot give all of it up.
Once a position is sufficiently ahead, the stop moves to the entry price. From there the trade cannot lose, which changes how it feels to hold.
No. A stop is evaluated against the price when it is checked, so an index that opens far away means the stop executes at the new level. Running strategies intraday removes gap risk entirely.
No. It triggers an order, and that order fills at whatever price is available. In fast markets or thin strikes the fill can be well away from the stop level.
Start from what move would tell you the thesis was wrong, express that, then test it once and run the plateau check. Searching for the value that backtests best is how curve fitting begins.
Decide explicitly. On most multi-leg structures, leaving the rest open means holding a position with a different risk profile than the one you designed.
Start with a free 3-day trial
Build a strategy, backtest it and run it on paper — no broker, no IP and no money needed to try it.
