Setting price limits
OCO orders help you place stop-loss and price target levels at the same time into the order system. If you have initiated a long call position at, say, 175, you could fill a price target at, say, 250 and a stop-loss at, say, 145. If the option hits one of the prices and the order is executed, the other automatically cancels.
The decision to use OCO orders depends on how you trade options. Your trading plan with entry price, stop-loss and price target can be based on the underlying when you are trading equity options and on index futures when you are trading index options, as the spot index is not a tradable asset. So, this would mean you will either take your profits or cut losses on your options position based on whether the underlying or the index futures hit the relevant price level. The logic supporting this action is that the option price is derived from the underlying and the trading is based on your view on the underlying. In such cases, you can set an alert to sell your option position for a profit when the underlying or index futures hits your price target. Or cut your losses when the underlying or index futures hits your stop-loss. Called Alert Trigger Orders (ATO), the order system will automatically place your order when the alert is triggered. You can separately place price target and stop-loss using ATO. But you must remember to manually cancel one if the other is triggered. Alternatively, you can set stop-loss and price target on the option price based on your desired profit and risk levels. This can be determined either on an absolute basis (say, 20 points per option) or on a percentage basis (say, 20 per cent above the entry price). Then, you can use the OCO order.
Optional reading
The OCO order is optimal for trading options for several reasons. The pre-determined price levels are triggered during trading hours, reducing loss in option price due to time decay. Also, given the high level of volatility, your option position can either hit its stop-loss or price target. By placing both prices into the order system, you can exit the position with minimal slippage costs. Importantly, execution of one order cancelling the other makes the OCO order more efficient than ATO. Note that ATO can work well when you want to accumulate, say, Nifty ETF units if the Nifty Index were to decline by a predefined price or percentage. It is moot if you should use such a trigger rule to enter options position. We will leave this discussion for later.
(The author offers training programmes for individuals to manage their personal investments)
Published on March 21, 2026