Stop-Limit Orders

[dmk112]

Well today I got burned when my stop-limit order wasn't executed. I set the stop and limit order by .03. So I wanted to learn from this and wanted to know if you guys usually just use plain 'stop' orders instead of 'stop-limit' orders, if not, how many cents should I put in between the stop and the limit?

[New-born baby]

Stop it

Well today I got burned when my stop-limit order wasn't executed. I set the stop and limit order by .03. So I wanted to learn from this and wanted to know if you guys usually just use plain 'stop' orders instead of 'stop-limit' orders, if not, how many cents should I put in between the stop and the limit?

A 'stop-limit' order requires your broker to sell the specified security at the limit price. Thus, if your stop-limit is at $20.03, and the price drops to $20.02, you are passed by altogether. The price could fall all the way down to $5, and you'd be sitting there high and dry.

What you want is a stop order so that you sell 'at market' when your stop is hit. Then it would sell at $20.02, or whatever the market will bear at the time.

[dmk112]

A 'stop-limit' order requires your broker to sell the specified security at the limit price. Thus, if your stop-limit is at $20.03, and the price drops to $20.02, you are passed by altogether. The price could fall all the way down to $5, and you'd be sitting there high and dry.

What you want is a stop order so that you sell 'at market' when your stop is hit. Then it would sell at $20.02, or whatever the market will bear at the time.

Thanks... Is this what you use normally? And not stop-limit orders??

[Websman]

I seem to do better when I don't use stops.

[New-born baby]

None

Thanks... Is this what you use normally? And not stop-limit orders??

DMK,
I don't normally use stops. I have regretted that recently when KBH fell about $7 while I was away from my computer for two days. I would love to have bailed out with just a $3 loss.

Usually, I use mental stops. I know where I can't take anymore pain, and I bail. And another thing you can do to protect yourself is to sell a covered call. That means that you sell someone the right to buy the stock from you at
a specified price. Thus, if the stock price falls, you still have both the stock and the money.

Here's an example: BMHC is currently around $90. The Oct$95 call is selling for $3.60. Thus you get $3.60 cash right then and there. Now if BMHC hits $95 in October, your stock will get called away for $95, plus you keep the $3.60, for a total of $98.60 for your $90 stock. Not bad for a month's rent.

But if BMHC falls to $85, you have your shares which you paid $90, and the $3.60, for a real price of $86.40. Then you are only $1.40 in the hole. In that case you could sell another call so that you are in the black.

And let's say BMHC is only $93 on the third Friday in Oct. You keep the stock and the $3.60, so you get $96.60 for your $90 stock. Not bad for a month's rent.

So you see, there is more than one way to place a 'stop.' And a 'stop' doesn't always have to be a 'stop.'

[ricofrans]

Stop Order after trading hours

I have also been thinking of using stop limit but I am not sure what will it behave after trading hours.

What's going to happen after trading hours when normally the spread is much higher. Will our stop order will be filled up with the much lower bid?

Thanks,