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You can manage risk with stop-loss. Its not really that hard. You can use this to "lock-in" profits without selling.

nullc 6y ago
That isn't how a stop-loss actually works. You aren't guaranteed execution above a particular price. You could lock in gains using puts, but when you go and price out doing so you'll see exactly how much the market values the risk in the position.
- sokoloff 6y ago
  So, I was on the wrong direction of this trade, having bought puts on Monday and Tuesday. The stock rocketed up today and the puts rose about 20% as well (which is crazy and counter-intuitive). So, I was entirely wrong and made money anyway. Once I realized I couldn't account for what was happening, was totally wrong on the direction, and being offered a token gain to get out, I got out. Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility.
  - kshacker 6y ago
    > Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility. Because the higher you are, the closer you are to a crash. Peaks take time to build, but crashes can happen overnight (or premarket).
    - FabHK 6y ago
      The put is just another instrument that trades. What will under normal circumstances keep a put close to the "correct" price? Well, if the price goes too high, people will start writing puts, driving the price down. If you write a put, you're long the stock. To hedge yourself, you'll need to short it. To the extent that that is difficult right now, nobody will be willing to write puts. (Strictly speaking, the put is so out of the money right now, that one would not have to short much today. But as soon as the stock price falls and approaches the strike, the writer of the put would need to start shorting. "Hey, anyone got some shares I could borrow?") On the other hand, if you want to take a negative view on the company, buying a put is sensible thing to do. That'll drive the price of the puts up.
  - blihp 6y ago
    That's just a cheap way to bet on the trade being played out by then: buy some deeply out of the money puts with a relatively low premium today (the further out of the money, the lower the premium... so you can afford to buy more) with the expectation that they'll be deeply in the money in a few weeks. Works a treat... as long as you're not wrong on direction, magnitude or timing.
  - defen 6y ago
    > The stock rocketed up today and the puts rose about 20% as well This is called IV expansion.
  - kristjansson 6y ago
    The implied volatility isn't insane if the underlying is, you know, insanely volatile.
andrewprock 6y ago
Stop loss is really the wrong term mathematically. In truth, a "stop loss" is really better thought of as a "max price". If you set it up to sell when the prices drops to $320, you are guaranteed that it will sell at a price below $320, not that it will sell at $320. In truth, you are not even guaranteed to be able to find a buyer.
- tekknik 6y ago
  There are also stop limits, vs stops which just sell at market. there’s also OCOs and OSOs that can make things interesting.
  - freeone3000 6y ago
    with a stop limit, you'll simply be left holding the stock if it drops below your limit. depending on what you expect the market to do, this could actually leave you in a worse position (ex, if the value keeps dropping). I'm sure you know this, but, understanding your exit from a speculative position is just as important as your entry.
- FabHK 6y ago
  To be precise: As soon as a trade <= 320 is printed, the stop loss turns into a market sell order. It could sell over 320, it could sell under 320 (though much more likely the latter).
- dragonwriter 6y ago
  > If you set it up to sell when the prices drops to $320, you are guaranteed that it will sell at a price below $320, not that it will sell at $320. IIRC, that’s closer than the naive interpretation (“you will sell at exactly $320 if the price drops to or below that level”), but it's still not quite right. Unless I'm mistaken, a stop-loss @ $320 is actually “if the price is at or below $320, submit a market sell order”. In theory, it could execute above $320, though at or below is vastly more likely. And, as you note, you aren't guaranteed it will execute at all.
drited 6y ago
If it gaps down stop loss orders won't execute at the stop loss order price (because there is no buyer at that price). Therefore previous paper profits are not locked in with certainty with stop loss orders. You need prices to swoop down in an orderly way with sufficient liquidity for stop losses to work in the way I think many imagine they do.
- sjg007 6y ago
  It would execute at the gap right?
  - svachalek 6y ago
    It would go to the first buyer under the limit. So for example if you had a stop loss at $200 and the stock went from $201 to $2, it would sell for $2.
    - deleted 6y ago
      [deleted]
  - nrmitchi 6y ago
    tldr; When your stop-loss is hit, it executes at the best price available at the time, which (as far as I know) has no guarantees. I think a good example of this is the Ethereum flash-crash on Coinbase in.... 2017? Something happened (IIRC someone submitted a very large market-sell, maybe by accident), but it completely wiped out half of the order book. This triggered all of the stop-losses that people had submitted. But... almost the entire order book was gone. So they sold very low. Which triggered more stop-losses. Which sold lower, and so on. In the end stop-losses ended up largely selling to one super-lucky-account-that-I'm-sure-set-this-up-as-a-joke-and-forgot-about-it who had a limit buy in for 10c/ETH. IIRC the price was ~350 when this started. When people were able to start buying again, the price jumped up again (obviously). But this lucky person was able to buy ~5k ETH at 10c, because all the stop-losses triggered. ¯\_(ツ)_/¯
deelowe 6y ago
Someone has to be around to buy the stock. Stop-loss or not. Once all this implodes, there will be a ton of retail investors left holding the bag.
pivoter 6y ago
not really. you're going to get killed because shorters have been hunting for stop losses all day for the past week.

That isn't how a stop-loss actually works. You aren't guaranteed execution above a particular price. You could lock in gains using puts, but when you go and price out doing so you'll see exactly how much the market values the risk in the position.

sokoloff 6y ago
So, I was on the wrong direction of this trade, having bought puts on Monday and Tuesday. The stock rocketed up today and the puts rose about 20% as well (which is crazy and counter-intuitive). So, I was entirely wrong and made money anyway. Once I realized I couldn't account for what was happening, was totally wrong on the direction, and being offered a token gain to get out, I got out. Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility.
- kshacker 6y ago
  > Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility. Because the higher you are, the closer you are to a crash. Peaks take time to build, but crashes can happen overnight (or premarket).
  - FabHK 6y ago
    The put is just another instrument that trades. What will under normal circumstances keep a put close to the "correct" price? Well, if the price goes too high, people will start writing puts, driving the price down. If you write a put, you're long the stock. To hedge yourself, you'll need to short it. To the extent that that is difficult right now, nobody will be willing to write puts. (Strictly speaking, the put is so out of the money right now, that one would not have to short much today. But as soon as the stock price falls and approaches the strike, the writer of the put would need to start shorting. "Hey, anyone got some shares I could borrow?") On the other hand, if you want to take a negative view on the company, buying a put is sensible thing to do. That'll drive the price of the puts up.
- blihp 6y ago
  That's just a cheap way to bet on the trade being played out by then: buy some deeply out of the money puts with a relatively low premium today (the further out of the money, the lower the premium... so you can afford to buy more) with the expectation that they'll be deeply in the money in a few weeks. Works a treat... as long as you're not wrong on direction, magnitude or timing.
- defen 6y ago
  > The stock rocketed up today and the puts rose about 20% as well This is called IV expansion.
- kristjansson 6y ago
  The implied volatility isn't insane if the underlying is, you know, insanely volatile.

andrewprock 6y ago

Stop loss is really the wrong term mathematically. In truth, a "stop loss" is really better thought of as a "max price". If you set it up to sell when the prices drops to $320, you are guaranteed that it will sell at a price below $320, not that it will sell at $320. In truth, you are not even guaranteed to be able to find a buyer.

tekknik 6y ago
There are also stop limits, vs stops which just sell at market. there’s also OCOs and OSOs that can make things interesting.
- freeone3000 6y ago
  with a stop limit, you'll simply be left holding the stock if it drops below your limit. depending on what you expect the market to do, this could actually leave you in a worse position (ex, if the value keeps dropping). I'm sure you know this, but, understanding your exit from a speculative position is just as important as your entry.
FabHK 6y ago
To be precise: As soon as a trade <= 320 is printed, the stop loss turns into a market sell order. It could sell over 320, it could sell under 320 (though much more likely the latter).
dragonwriter 6y ago
> If you set it up to sell when the prices drops to $320, you are guaranteed that it will sell at a price below $320, not that it will sell at $320. IIRC, that’s closer than the naive interpretation (“you will sell at exactly $320 if the price drops to or below that level”), but it's still not quite right. Unless I'm mistaken, a stop-loss @ $320 is actually “if the price is at or below $320, submit a market sell order”. In theory, it could execute above $320, though at or below is vastly more likely. And, as you note, you aren't guaranteed it will execute at all.

drited 6y ago

If it gaps down stop loss orders won't execute at the stop loss order price (because there is no buyer at that price). Therefore previous paper profits are not locked in with certainty with stop loss orders. You need prices to swoop down in an orderly way with sufficient liquidity for stop losses to work in the way I think many imagine they do.

sjg007 6y ago
It would execute at the gap right?
- svachalek 6y ago
  It would go to the first buyer under the limit. So for example if you had a stop loss at $200 and the stock went from $201 to $2, it would sell for $2.
  - deleted 6y ago
    [deleted]
- nrmitchi 6y ago
  tldr; When your stop-loss is hit, it executes at the best price available at the time, which (as far as I know) has no guarantees. I think a good example of this is the Ethereum flash-crash on Coinbase in.... 2017? Something happened (IIRC someone submitted a very large market-sell, maybe by accident), but it completely wiped out half of the order book. This triggered all of the stop-losses that people had submitted. But... almost the entire order book was gone. So they sold very low. Which triggered more stop-losses. Which sold lower, and so on. In the end stop-losses ended up largely selling to one super-lucky-account-that-I'm-sure-set-this-up-as-a-joke-and-forgot-about-it who had a limit buy in for 10c/ETH. IIRC the price was ~350 when this started. When people were able to start buying again, the price jumped up again (obviously). But this lucky person was able to buy ~5k ETH at 10c, because all the stop-losses triggered. ¯\_(ツ)_/¯

deelowe 6y ago

Someone has to be around to buy the stock. Stop-loss or not. Once all this implodes, there will be a ton of retail investors left holding the bag.

pivoter 6y ago

not really. you're going to get killed because shorters have been hunting for stop losses all day for the past week.