P&L Action: Stop Adjustment

Basic calculation of a Stop Adjustment in OptionsApp

Regardless of whether it's a Credit or Debit trade, OptionsApp uses the same basic mechanism for Stop Adjustments. With a Credit, you're dealing with a negative price (you receive money when opening), with a Debit, a positive price (you pay for the position).

A Stop Loss is always calculated internally as a deduction from the current price. This means:

• With a Credit (e.g., -$3.00 Entry Premium) and a Stop deduction of $1.50, the new Stop is at -$4.50.
• With a Debit (e.g., +$3.00 Entry Premium) and the same deduction, the Stop is at +$1.50.

This logic ensures consistent behavior and intuitive implementation of Stop Adjustments-regardless of whether you're trading a Short or Long position, or a Credit or Debit position.

Sections in the Definition

A Stop Adjustment always consists of one line with two sections:

• At profit: When should the Stop be adjusted?
• Adjust stop loss to: How should the new Stop Loss be set?

You have the following options for each:

Section 1: "At profit"

This defines when the Adjustment should take effect:

Percentage of Premium: A percentage of the original Entry Premium.
Example with a Credit trade: At 50% of an Entry Premium of $2.00, the trigger is at an option price of $1.00.
With a Debit trade of also $2.00 Entry, the Adjustment would be triggered at a rise to $3.00 (i.e., $1.00 profit).

Fixed Profit: A fixed dollar amount defined as your target profit.
This refers not to the option price itself, but to the actual profit amount achieved.
Example with a Credit: Entry Premium $2.00, current price $1.50: Profit $0.50, Adjustment triggers.
With a Debit, the same applies: Entry $2.00, current price $2.50: $0.50 profit: also triggers.

Section 2: "Adjust stop loss to"

Once the profit is reached, the Stop Loss is reset-relative to the current option price, not the original Entry Premium:

Percentage of Premium: The new Stop is determined as a percentage.
Example with a Credit: 100% on a current price of $1.00 results in a new Stop at $2.00, internally, the Stop is then set to -$2.00 (starting from e.g., -$1.00).
In the case of a Debit, 100% doesn't make sense because the Stop would be lowered to $0.00. Suppose it were 50% adjustment, then at a current price of $3.00, it would be adjusted to a Stop of $1.50.

Amount: A fixed profit amount.
Example with a Credit: $1.00 markup on a current price of $1.00 results in a new Stop at $2.00 (internally: -$2.00).
With a Debit: Price is at $2.00, Stop is set at $1.00 (i.e., $2.00 - $1.00).

Example 1:

A user wants to trail the Stop to 3 times the current option price once 70% profit is reached:

• The executed Entry Premium is $3.00.
• At 70% profit (option price = $0.90), the Stop Loss is set to $2.70 (200% above the current price of $0.90).

Example 2:

A user wants to set the Stop one dollar higher than the then-current option price as soon as the option is $1.00 in profit:

• The executed Entry Premium is $3.00.
• At $1.00 profit (option price = $2.00), the Stop Loss is set to $3.00 ($1.00 above the current price of $2.00).

From the app's perspective, the new Stop is always set upward from the current price. For the user, it doesn't matter that negative prices (for short options) are calculated in the background.