Chapter 04 · Section 4.1
Stop Orders- Price Fluctuations
Buy 3 CBOE BankAm June 15 calls stop-loss 3 1/2 Suppose that when you placed the order, the price was 3 1/8. Later, the price suddenly rose to 3 7/8, then fell quickly to before the floor broker was able to execute the order.
Should the floor broker buy at 3 1/4?
a) yes
b) no
A stop order becomes a market order if the trigger price is touched.
Because the price went through the trigger price (3 1/2), the stop order turns into a market order.
A market order must be executed immediately.