Friday’s swift price action scooped down below SPY 204, took out the stops and had all the “line in the sand” traders frantically trying to re-establish their positions by mid-afternoon. Yet another reminder of why I wouldn’t want to be trying to second guess where the most “logical” place for a stop would be in today’s market. Making them tight requires close vigilance with frequent exits and re-entries, while making them looser eventually gets you to a point where there’s no point in having them. And so we don’t use them… instead we limit our risk by tightly managing the premium paid (never pay more than you’re willing to lose) for the options contracts. -MD
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