In the simplest term, OCO cancels one order at the moment the other gets filled. It is like going to a restaurant ordering a hamburger and if they don’t have it you take the cheese burger. I rarely hear people use OCO to get in a trade. Most of the time, OCO is used to get out. For example, if you have a $4.00 call option, you linkbypass oto have a 2 exit targets. One is to get out at 100% profit and the other is at 50% loss. You can use OCO to sell this option when the price either hit $8.00 or $2.00.
As soon as the profit target is hit and you sell at $8.00, the other is instantly canceled to prevent you from shorting a call option at $2.00. The opposite is true if the $2.00 stop loss order is triggered. What it does is simply sending order(s) out when a particular order gets filled.
OTO is used to get in a trade that already has a plan to exit. The order that is waiting to get triggered could be just one order but I believe two most of the time. Those are the two inside an OCO. If you want to buy one $5.00 put option and plan to get out at 2 points, 100% profit at $10.00 and 50% stop loss at $2.5, you would do the following.
Place an OTO order for the put at $5.00 but make it an OTO. The order on the 2nd half is set to OCO. As explained above in the OCO section, one will be $10.00 stop profit and one will be $2.5 stop loss. This is the advanced version of the stop loss order. Stop loss order will take you out of the trade by converting itself to a market order when the price hits.
However, since the stop floor is fixed, it does not help protecting your profit if you are right on the direction. What trailing stop loss order does is automatically moves your stop level up when the market moves in your desire direction. For example, if you are holding a $3.00 call option and it jumps up to $5.00, you profit $2.00. However, this profit is not protected if the market moves back down and the $5.00 option becomes $3.00 again.
If you use a trailing stop loss, you can set the distance between the stop level and the current market price of that option. In the above example, you can set it to $1.00 trailing or a number of your choice. What it does is raising the stop level so that the distance from the current market price is only $1. If the market moves back down by $1, you will be taken out of the market and lock in the profit.