# Setting Options Targets and Stops



## Diggs1 (6 October 2011)

I've been learning full time for 5 months now. My fiance is an environmental engineer, she is in high demand especially on the mines and refineries around Australia. I had a career but it didn't interest me long term and I've always wanted to put my head down and go for it with trading.

We decided she'd apply for jobs at the mines and refineries and if the right offer came along (high paying enough to cover both of us) I'd quit my job, we'd move wherever we had to move and I'd study and paper trade full time so after a period of time (around a year or so) we could go back home and I'd either continue to trade full time or work part time and trade part time depending on how successful I. 

So we moved from the beautiful Gold Coast to to an ugly industrial town in central QLD. Missing home, much prefer the lifestyle of the Gold Coast. It's starting to send us crazy but we put our heads down and know there's a purpose and an end.

My main study has been technical analysis and options and next I will learn CFD's though I think I already know more of what there is to know about CFD's than I do options without even trying, options are so complex when you get into the greeks and strategies.

I did start real options trading about 3 months ago but the trades are small and only one at a time for now. Once my experience grows so will the trades. I'm out ahead so far with the real and paper trades though I have learned I 'can' execute my stops when hit!

I have many questions, wish there was a ligit school or even a university course on trading. My question today is..Setting Option Targets and Stops.

So far the risk ratio I seem to have come across most is 1:2 or 1:3. That is if I set my stop loss at 30% I should set my profit target at 60-90% and vice versa. Are these the general targets people set? I have seen higher risk ratios, 1:4 or 200% profit target with 50% stop. I would expect you'd want the bigger stop at 50% because it's a volatile market thus aiming for a higher profit target. These stops seem mighty big to me though.

I've missed many smaller profits in very short time frames waiting for my 60-80% profit target to be hit e.g. 35% in 3-5 trading days. On paper it seems more profitable to take the smaller profits more often than waiting for the bigger profits that take longer to be reached, but by reducing my profit target I'd need to reduce my stop. I'm worried this will stop me out too often.

What's peoples thoughts on this? I've read many times not to be greedy but are these small profit targets in options just too low?


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## wayneL (6 October 2011)

I gather you are using long only calls and puts?

IMO stops and targets based on the option price is not realistic from an analysis point of view. Options are a derivative with a non-linear relationship to the underlying, x% stop on the option price might have no relationship to valid technical levels on the underlying stock.

FWIW


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## colion (7 October 2011)

I agree with wayneL.  For long option positions enter and exit based in large part on your analysis of the underlying.


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## Diggs1 (7 October 2011)

Yes long only at this stage.

Thanks for the feedback. Some of the webinars I've done have had their target and stops based solely on the option trade. If I'm basing my exits on the stock analysys it pretty much means I have no idea of risk/reward targets with the option as the delta will change making it difficult to predict returns/losses??


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## wayneL (7 October 2011)

Diggs1 said:


> Yes long only at this stage.
> 
> Thanks for the feedback. Some of the webinars I've done have had their target and stops based solely on the option trade. If I'm basing my exits on the stock analysys it pretty much means I have no idea of risk/reward targets with the option as the delta will change making it difficult to predict returns/losses??




Webinars... figures 

Sounds like you should just use CFDs IMO


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## Diggs1 (7 October 2011)

wayneL said:


> Webinars... figures
> 
> Sounds like you should just use CFDs IMO




Yep it's starting to look that way!!

I do like options and see the returns that can be made but not being able to control my exits directly seems a bit risky to me. I feel confident with my technical analysis system which would apply more easily to CFD's. 

Will continue with the options as well though as there's still so much to learn and there's so many ways to use them for income/profits.

The goal is to eventually trade both.


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