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.
d) the price is not yet as bad as 3 1/2.
A stop-loss order is usually used to get out of a position. In this case you are short 3 calls. If the price of the option increases, you will lose money.