A bracket order is a combination order that places your entry and automatically sets both a profit target and a stop loss when you enter.
How It Works
You want to sell a put spread for $200 profit max, $300 loss max.
You place a bracket order:
- Entry: Sell the put spread (enter now)
- Profit Target: Buy it back when profit hits $200 (upper bracket)
- Stop Loss: Buy it back when loss hits $300 (lower bracket)
When your entry fills, both orders activate. Whichever fills first (profit target or stop loss) cancels the other.
Pros
- Discipline: Profit and loss targets are set before emotion kicks in
- Defined Risk: You know exactly how much you can win/lose
- Hands-Off: Walk away, orders manage your position
- Perfect for Spreads: Ideal for iron condors, straddles, etc.
Cons
- Not All Brokers: Some brokers don't support bracket orders
- Complexity: Takes practice to set up correctly
- Might Miss Adjustments: Can't adjust if thesis changes mid-trade
Using Brackets
For options spreads:
- Calculate max profit and max loss
- Set profit target at 50-75% of max profit
- Set stop at max loss
- Enter bracket order
- Let it play out
Best For
Income traders and spread traders. Less useful for directional long calls/puts (harder to predict profit).
Related: Profit Target, Stop Loss, Order Types
