Is a 10% STOP on ATM Options a Good Idea?
Summary
Sasha Evdakov addresses whether a 10% stop loss is appropriate for at-the-money options like SPY and QQQ. He argues that such tight stops are often ineffective due to rapid time decay, which can trigger exits before the trade recovers. Instead, he suggests traders should be comfortable with the full maximum loss of the position or adjust their strategy by using cheaper, longer-dated contracts. Evdakov also explores alternatives like vertical spreads or selling puts against calls to mitigate theta risk, emphasizing that understanding option behavior is more critical than relying on arbitrary…
Topics discussed
Introduction: Is a 10% stop right for ATM options?
Assumptions: Buying single options vs. spreads
The problem with tight stops and theta decay
Live example: QQQ option decay analysis
Comfort with max loss vs. stopping out
Alternative: Trading cheaper, further-out options
Vertical spreads as a better risk/reward structure
Mitigating decay by selling puts against calls
Conclusion: Understanding option behavior over stops
Outro and resources for further learning
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