Ask TheStreet: Limits and Losses

A stop-limit order at $15 in such a scenario would not be exercised, since the stock falls from $20 to $12.50 without touching $15. That's why a stop loss offers greater protection for fast-moving stocks.

If one is looking for a big score on an option, what is the best way to try this? Thanks, J.B.

The surest way to lose money on Wall Street is to search for the so-called big score. And to try to do so using options? Well, in that case you might as well donate your money to charity, because you obviously won't be holding it for very long.

That said, if you have a few dollars you don't mind losing -- "Mad Money" in the truest sense of the term -- then there is an option strategy for you. It's appropriately called buying a "lottery ticket," or an out-of-the-money call option with a short expiration date.

Let's say, for example, that you had a dream around March 16 that fictional ABCD Corp. will have the luck of the Irish and announce a tremendously positive deal on the morning of St. Patrick's Day, March 17. You have no evidence of this deal, because that would be insider trading, but your vision was so clear that you are willing to risk some Mad Money on it.

And, as luck would have it, March 17 also happens to be an options expiration date, because it's the third Friday of the month.

Now, let's also say that ABCD is trading at $20 per share on March 16, the day before expiration. But you think this fictional deal will catapult the stock to $23 a share when it is announced the next morning.

So, with visions of this deal dancing in your head, how can you earn the maximum return by putting down the least amount of money?

One strategy is to buy a March $22.50 call option. And since ABCD is currently trading well under the strike price of $22.50, it is also considered an "out-of-the-money-option."