How to Stop Losing Money with Stop Loss Orders

A question from a RadioActiveTrading follower…

I have been out of the market for a couple of years and want to get back but I am afraid to pull the trigger…one of the reasons is because of losing money on stop losses. Do you have any suggestions how I can overcome the fear of losing money in all instances???

The Answer to Your Stop Loss Order Problems…

This is precisely what we teach at RadioActive Trading. Our trading method begins with a unique form of married put or protective put setup, which guarantees that we can not lose more than single-digits (4% to 8% – like you might use for a stop loss order ) of our invested capital on any position. We then use different Income Methods to reduce and potentially cancel the initial risk amount.

Here is an example of one of our actual trades that is shown to our Fusion subscribers:

April 22nd, 2013:

Buy 100 shares of Hertz Golbal (HTZ) at $23.29
Buy 1 September 25 strike put at $ 3.30
Total Invested = $26.59
Guaranteed Exit = $25.00
Total At Risk = $ 1.59 or 6.0%

HTZrpm initial

The initial position setup gives us:

1. Unlimited upside profit potential
2. A Guaranteed Exit, or insurance policy so that we can not lose more than 5-8% even if the stock dropped to $1.00 per share (so much better than a stop-loss order)
3. Several months of a guaranteed insurance policy (April to September)
4. Ability to do other nested option trades to lower the initial at risk

Common skepticism’s about this technique? 

“You spent so much money on the put option. You can not make a dime until the stock reaches $26.69 per share?”


$26.69 is the break-even, but if an only if we hold the position all the way to September expiration and make no adjustments. Because we bought the put option far out in time, the put does not decay 1:1 with the stock. Our true ‘at-risk’ is only the time value of the put option – which will decay much more slowly as we used a far out put.

Also, note the Profit and Loss Chart. The curved red line shows the P/L halfway between today and September expiration. Note that the break-even on August 7th is closer to only $25.00 per share, not the $26.69 break even at expiration. This is due to the fact that the put option will still retain its time value until we get closer to September expiration. We are not down 6% the minute we open the married put, we are only risking the bid-ask spread the moment the trade is opened.

Now, back in May HTZ moved up in price and we were able to apply one of the income methods. This generated $0.70 of credit and left our upside completely open. Thus, the total at risk (after today’s expiration) will be reduced from $1.59 ($159.00 per 100 shares) to $0.89 ($89.00 for 100 shares). We have the choice to do another adjustment for July or August expiration that could potentially cancel all of the risk in the position ( we call that a BULLETPROOF trade – no risk no matter what happens to the stock).

The RadioActive Trading techniques will really allow you to trade with confidence knowing that you have a guaranteed exit that keeps your position risk to single digit percentages.

Check out the archived webinars here:

And consider picking up The Blueprint or the Home Study Kit that teaches how to setup the initial position and the full discussion on the 11 different income methods.

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