Question comparing Options and Stop Loss/Take Profits
Hi Monkeys,
I just got test results back, and wanted your opinions on a T/F question:
"Stop Loss/Take Profit orders are more flexible than options"
My opinion is that based on the information given, SL/TP orders are more "flexible" because they have no upfront cost, and can be adjusted as the market changes. It's also my understanding that you can use a SL/TP to purchase an option, so because you haven't paid the upfront price of the option, you have more flexibility. Worst case scenario, it triggers an option (which you'd already have, if you did an option).
I just see it as a free way to possibly ride the market up, but at the same time have not be locked into an option yet on the downside if you're willing to accept some downside risk.
Note that I'm not saying this would be a good trading strategy, but that according to the wording of the question, with no other information, it could be true.
My instructor is open to me proving that this is true, so is it? I haven't been able to find a reputable source that would confirm/deny my above statement.
Note: I'm in corporate finance, not trading, so I don't really have someone that I work with to bug with these questions.
Thanks
I'm interested in the answer to this question as well.
it's arguable that you will have upfront costs, e.g. the call you sell could cost more than the put you buy. Id say options are more flexible as you do not have to buy/sell the security itself when the price reaches the target (perhaps you're buying temporary 'insurance' and wish to keep the stock + transaction costs would be higher for stock than for options).
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