Chapter 04 · Section 4.1
When a stop order is executed?
Buy 3 CBOE BankAm June 15 calls stop-loss 3 1/2.
A stop order, whether buy-stop or sell-stop, is executed when the market price gets:
a) as high as specified or higher.
b) as low as specified or lower.
c) as bad as specified or worse.
d) as good as specified or better.
A stop order becomes a market order if the market price reaches the price specified in the order. Is the market price when the order is executed higher, lower, better or worse than at the time the order was given?
Remember a stop order is generally used to liquidate losing positio. The investor protects himself against further losses from a market continuing to move against his position.