Chapter 04 · Section 4.1

Stop Orders- Call

Take a second look at that stop order:

Buy 3 CBOE BankAm June 15 calls stop-loss 3 1/2

The floor broker should not execute the order as long as the market price of the call option remains below 3 1/2 because:

a) you want a better price than 3 1/2.
b) you want a lower price than 3 1/2.
• c) you want a higher price than 3 1/2.
  No. Your objective is to limit your loss from an increase in price. You expect your order to be executed at 3 1/2 or as close to 3 1/2 as possible. Buying at an even higher price is definately not your objective.
  d) the price is not yet as bad as 3 1/2.

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