We got into our bullish trade, then the stock went a little higher and then started pulling back. Our stop (i.e. line in the sand) was $22.68, which on 6/22/09 (highlighted in the red box) the closing price was $22.42 therefore triggering our stop.
We have a loss on this one. Let's now look at what our option price was via the screen from that day:
The highlighted yellow line shows what we can sell our option back to the market for on 6/22/09. We can sell it back for $1.70. Notice that we did NOT hit our 50% stop which was $1.50. You ONLY have to hit one stop OR the other - NOT BOTH.
We initially bought this option for $3.00 and got stopped out at $1.70, therefore our loss was $1.30.
Don't focus so much on what you lost. You MUST be willing to take those exact set-ups time and time and time again. Because if you get gun shy and don't take one, then that will be the one that makes the most money for you. The professionals will always tell you to "take your losses quickly". As long as you have proper money management, then you should not get hurt by some losses. It's all part of trading.
Also, here's what happened after the stop was hit:
If you did not take your loss at your pre-determined stop, then you would have lost way more money.
LESSON: TAKE YOUR STOPS - ALWAYS!!!
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