In trading, we’re taught early on that risk management is everything. “Use stop losses!” they say. And I agree. But what I’ve come to learn—especially when trading options in volatile markets—is that stops aren’t always about a precise line in the sand. Sometimes, they’re more like zones. Areas. Regions on the chart where you start paying close attention, rather than pulling the trigger at the first sign of trouble.
This came into sharp focus recently as volatility spiked. When the market threw its “tariff tantrum” and everything went haywire, we saw stocks and indices swinging wildly in both directions. On any given day, the same stock could be up 5% in the morning and down 5% by the afternoon. It was chaos. And chaos doesn’t play nicely with rigid stop-loss levels.
I had several long positions on during that time—mostly defined-risk spreads with expirations a few months out. The kind of trades that allow for a bit more breathing room. Yet many of these positions would repeatedly dip below my stop levels… only to recover just hours later. Over and over. A less experienced version of me might have panicked and bailed the moment my mental stop was breached. But I’ve learned not to act on intraday moves alone.
As a rule, I don’t exit on intraday stop violations. I wait for the close. If a trade closes below my stop level, then I’ll typically look to exit near the next open. But even that guideline needs some flexibility when the market is temporarily unhinged.
Take my position in Comstock Resources, ticker $CRK:
On March 31, I entered a September 22/30 Bull Call Spread (see purple circle on the chart). This is a bullish position that consists of long calls at the $22 strike and an equal amount of short calls at the $30 strike. The most I can lose is the $1.85 net debit I paid for the trade. A few days later, “Liberation Day” hit—when stocks got torched across the board. $CRK was no exception. It sliced below my stop level of $18 (see green circle) and bounced back above it, multiple times per day.
But I didn’t exit. Instead, I stepped back and took a broader view.
I chose to treat that $18 level not as a precise line, but as an area—a key zone that was revealing itself through price behavior. Even amidst the chaos, that level seemed to matter. And once the dust settled and the market started to trade more normally again, $CRK continued to test that level… and hold it on a closing basis.
So I held.
And now, I’m being rewarded. The stock is back near the highs.
Here’s the lesson: When you’re trading defined-risk option spreads, especially with months until expiration, you have the flexibility to weather short-term storms. You don’t have to react to every intraday violation. You can afford to be a little more thoughtful. A little more nuanced. You can zoom out and say: “That’s an important level… but it’s a zone, not an absolute.”
Risk management is still critical. Stops still matter. But context matters more. And in volatile markets, you have to adapt. Know the structure of your trade. Know what you’re willing to risk. And when the tape gets crazy, lean on your experience and gut a little.
It might just keep you in a winning position!
Sean McLaughlin | Chief Options Strategist, All Star Charts
