A stop limit order lets you add an additional trigger to your trade, giving you more specificity over your order execution. When the options contract hits a stop price that you set, it triggers a limit order. Then, the limit order is executed at your limit price. Investors often use stop limit orders in an attempt to limit a loss or protect a profit, in case the price of the contract moves in the wrong direction.

With a buy stop limit order, you can set a stop price above the current price of the options contract. If the contract’s bid price increases to your stop price, it triggers a buy limit order. Contracts will potentially fill at your limit price or lower.

With a sell stop limit order, you can set a stop price below the current price of the options contract. If the contract’s ask price falls to your stop price, it triggers a sell limit order. Contracts will potentially fill at your limit price or higher.

The following are some of the more common reasons why stop limit orders for options don’t fill:

• If the market is closed, the order will be queued for market open. Stop limit orders will not execute during extended hours.
• Short-term market fluctuations may prevent your order from being executed. For example, if the market jumps between the stop price and the limit price, the stop will be triggered, but the limit order won’t execute.
• After your stop order becomes a limit order, there must be a buyer and seller on both sides of the trade for the limit order to execute. If there aren’t enough contracts in the market at your limit price, it may take multiple trades to fill the entire order, or the order may not be filled at all.
• The limit price is the same as the stop price. A stop limit can be useful but as with any limit order, the price is guaranteed but not the fill. In a fast moving or trending market, stops will often trigger but leave the limit order working at a former price level. Risk of leaving an unfilled limit order can be reduced by choosing a more aggressive limit price than stop price. While this may result in a less favorable fill price, it increases the likelihood of a fill when the stop is triggered.

Options trading entails significant risk and is not appropriate for all customers. Customers must read and understand the Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount.