Trade Template - Part 2 - Stop Configuration

Order Types

StopMarket

The default stop order type is a stop market (STP) order. A Stop Market order can fill at any price and is sent to the exchange as a Market order once the stop trigger price is breached.

StopLimitOCO (IBKR only)

This stop configuration will place two stop orders simultaneously in a One Cancels Other (OCO) setup. The first order will be a stop limit (STP LMT) order that will fill at or below your limit price. The second order will be a stop market (STP) order set to trigger at a higher price than the stop limit order. The purpose of this configuration is to attempt to exit your position with minimal slippage via the limit order, but in the event the market moves quickly and bypasses your stop order, the stop market order would fill instead. With these two orders in an OCO group, the broker will attempt to cancel the remaining order once one of the orders fills. 

NOTE: The broker DOES NOT guarantee that both orders in an OCO group will not fill. They attempt to cancel the second order, but it is possible that both orders will fill during a fast market move. If you use this order type it is VERY likely that eventually you will experience a double/over fill where both orders fill.

TAT attempts to monitor for this situation and will alert you with an email notification if detected. At this time, you will need manually close the extra position directly in TWS. It is your responsibility to monitor your account at all times for any extra fills when using this stop configuration.

When configuring a StopLimitOCO order, you will need to provide two additional configuration items:

Limit Offset: This specifies how much above the stop trigger value the limit price on the stop limit order should be. The stop limit order is always set to trigger on the mid-price to give it the best chance to fill before the stop market order has to kick in. (NOTE: IBKR limits how wide this offset can be, but doesn't document the exact rules. If the order is too wide, it will be rejected by TWS and you will be left with only your stop market order in place. TAT automatically adjusts your offset down to the lesser of 15% of the stop trigger price, or .50)

Stop Market Offset: Specifies how much above the stop trigger value the stop market order should be set to trigger at. This value needs to be higher than the Limit Offset.

In the example above, assuming the stop trigger price is 2.50, the stop limit order would trigger at the 2.50 price and have a 2.80 limit price (2.50 + .30 Limit Offset). The trigger price for the stop market order would be 3.00 (2.50 + .50 Stop Market Offset)

Trailing

Trailing stops are now available. Choose Trailing for the Order Type and provide a Trigger Offset value that will be used as the distance for the trailing stop vs. the live price.

None

For some trades, particularly debit trades, it might be appropriate to not have a stop order active at all. TAT will not place stop orders in the case and will also not issue warnings about these positions. To configure this, simply select “None” for the stop Order Type

Stop Types

Vertical

With the Vertical stop type, the stop order(s) will be placed to close the entire vertical spread, both short and long legs.

Short

The Short stop type will place the stop order(s) on only the short leg from the original vertical spread. This is most common when enter spread with a cheap short leg (.05) or a wider spread since the long leg typically does not have much value.

Using REL order for Short Stop Market (IBKR only, SPX/SPY/QQQ only) 

You can choose to use IBKR's REL (Pegged to Primary) instead of normal STP market orders when your stop is on a single short leg only. A Relative (REL) order is used and conditionally triggered based on the stop trigger price. The REL order automatically places your order to close at the current bid price plus a REL offset that you define. As the market price moves up, if your order has not filled, the order price is automatically adjusted as the bid goes up and follows the market until you get filled.

TIP: More information about how REL orders work at IBKR can be found on their website here and here. REL orders are not supported for ES.

To configure the REL order, you need to provide the REL offset (amount above bid to place the order) and a REL Limit Price, which is the absolute maximum that the price will be adjusted to. If the market price of your trade goes past your REL Limit Price without closing the position, TAT will be unable to close your position and you are at risk of a full loss, so you should set this limit price with that in mind. 

ITM Protection

If using REL orders for short stops, you can also make use of the ITM Protection feature. When this is enabled, an additional OR condition is added to the REL order that will trigger the order to close your position if the price gets withing the specified number of points from the strike price of the short option within the number of minutes specified prior to market close. 

In the configuration above, the REL order would trigger if SPX moves within 2 points of the strike price of your short option within 5 minutes of market close. For example, if you had a 4000 Put option, this order would trigger and close your position as soon as SPX moved to 4002 or less anytime after 3:55pm Eastern time.

NOTE: If you set up a value for ITM Protection, but forget to enter how many Minutes Before Close you want it to be active, it will be active 30 minutes prior to the close by default.

Target Type

Multiple

The Multiple target type allows you to select your stop trigger by calculating it based on a multiple of the original entry premium for the trade. The value entered for the multiple is the net loss you expect to receive in the event of the stop, not including the original premium. For example, if you set the multiple to 2 and you enter your trade for 1.10, your stop loss would be set to 3.30 (1.10 credit x 2 = 2.20 loss + 1.10 entry credit = 3.30)

Amount

The Amount target type specifies a specific amount to add to the opening premium to determine the stop loss trigger amount. For example, setting the amount to 1.50 on an entry credit of 1.10 will set your stop at 2.60.

Stop Trigger Offset

The optional offset can be used to further fine tune your stop trigger amount calculation. It works by adding to (or subtracting from) the stop trigger amount calculated by the Multiple/Amount settings. This can be useful if you would like to run 1x stops, but then lower the stop by -.10 to account for some slippage. 

Trigger 

The trigger specifies which of IBKR's trigger methods you want to use to trigger your stop to activate. Double Bid, Single Bid, Mid Price, Last, or Last or Single Bid.

TIP: For more information on the differences between trigger methods, please visit the IBKR website here.

Leftover Long Behavior

For trades, such as credit spreads, that could result in a stop on the short leg only and a leftover leg, you have the ability to configure what should happen to the long strike. 

Ignore - The long leg will be left open in your trading account. It will be available to be re-used as the long leg in a future trade entry if you have long reuse turned on.

Sell - The long leg will be sold immediately with a market order when the short leg of the trade stops out, if the it has a bid price at the time of the stop. If the long has no bid price and is unable to be sold, it will be ignored and left in the account.

Stop Basis

When entering an Iron Condor, you can choose to have the stop prices calculated on the Average Price, or Exact Price of the fill for each side. 

This setting is not applicable to IronCondor-Full since there is only one stop placed on the full iron condor, not separate stops for the puts and calls.

Exact Price

When using Exact Price (which is the default), the stops will be calculated using the actual fill price for both the call spread and the put spread separately. For iron condors, this will result in different stop prices if the entries filled at different prices. This price will be the total price for both the long and short options combined.

For example, if your puts filled for 1.20 and your calls for 1.00 and your stop was for 1x net loss, the stops would be set at 2.40 for the puts and 2.00 for the calls.

Average Price

When using Average Price, the prices of the put and call spread entries are averaged and then the stops for the put and call spreads are both calculated from that average. This results in both put and call sides having the same stop trigger price, even if they were entered for different prices.

For example, if your puts filled for 1.20 and your calls for 1.00 and your stop was for 1x net loss, TAT would use the average of the fills (1.10) so the stops would be set at 2.20 for the puts and 2.20 for the calls.

Short Price

When using Short Price, the price of only the short leg(s) will be used to calculate the stop price. This is useful for trade types that include vertical spreads.

For example on a put spread, if you short put filled for 2.50 and the long put filled for .50 and your stop was set to 1x, TAT would use the 2.50 short fill price only, and the stop would be set for 5.00.

Long Price

When using Long Price, the price of only the long leg(s) will be used to calculate the stop price. This is useful for trade types that include vertical spreads, typically debit spreads.

For example on a put debit spread, if you long put filled for 2.50 and the short put filled for .50 and your stop was set to 1x, TAT would use the 2.50 long leg fill price only, and the stop would be set for 5.00.