Seems most traders constantly struggle with getting option trades filled. And since we never suggest using “market orders” as a quick fix for entry problems, today I’m offering five quick tips for smoother option order execution. It’s a simple framework you can walk through the next time you’re having trouble getting a trade filled in the market. Hint: #2 is the most common mistake and easiest one to fix right away.
Key Points from Today’s Show:
New Smart Pricing Feature
- Bots will go in, when they start making automatic trades, and start entering multiple orders at more favorable pricing and start working their way up from there.
- The bots work for you, using automation and rapid order flow to help with smoother order execution.
If you are getting into a trade and the mid-price is $1, the bot will go in and start entering orders automatically for something lower than $1 so that you could potentially get in and pay something lower than a dollar. Or if you are selling options, the bot will try to go in and start adding orders in different markets for option prices higher than $1, trying to help you get better pricing while also working towards the mid.
Improving Order Execution
1. Target Liquid Tickers and Options
- Often times, traders are simply targeting the wrong tickers and options.
- The easiest thing you can do for smoother execution is trading the highest liquidity tickers and options.
- This will include ETFs, branded stocks (Tesla, Facebook, etc.), which will naturally allow you to get into things much smother.
2. Be Patient
- The key is to be patient and let the orders come to you.
- Place a trade, place your order and then just be patient — don’t adjust to quickly and let the order come to you.
- A lot of the smoothness is a self-reflection of how aggressive or how paranoid we can become as traders when we try to get into new positions.
3. Enter Orders At a Penny Above or Below the Mark Price
- This is something that is automatically done for you using the Option Alpha Smart Pricing Feature.
- However, if you do not have that capacity, you want to enter an order that is just slightly favorable than what’s out there right now.
- You do not always have to go after the mark; try to stretch the market and see if you can fish for traders willing to sell or buy above or below the mark.
Example: If the options contract is trading for $50 and you want to sell it for $50, often times if you enter an order for $51 you will get filled right away. That is because someone is willing to pay one dollar higher at the exact time that you are willing to accept one dollar higher in potential premium.
4. Use the Best Execution Tag
- This comes standard for most order entries, especially inside Thinkorswim.
- If you end up wanting to buy a contract, on the furthest right-hand side of that order entry it says “exchange”.
- You can actually specify which exchange your options contract goes to or where you want to fill your options contract.
- Always make sure that it is defaulting to the best exchange so that the contract gets filled at the best possible price.
5. Readjust Slowly
- At some point, you do need to adjust your pricing.
- Between the time you enter the order and the present, the market may have moved dramatically.
- Only readjust if there has been a significant change in the underlying price or volatility.
- If the stock is still sitting at your mid-price and is just not filling, you don’t need to adjust unless you absolutely want to get in the position.
- Often times you could just let the order expire and re-evaluate it the next day — don’t be too frantic to get into positions.
- If you do need to adjust, adjust slowly; wait 20 minutes, readjust the pricing by a penny or two, wait another 15-20 minutes, and readjust again by a penny — this is where using a mobile device becomes really useful in making these adjustments.
Free Options Trading Courses:
- Options Basics [20 Videos]: Whether you’re a completely new trader or an experienced trader, you’ll still need to master the basics. The goal of this section is to help lay the groundwork for your education with some simple, yet important lessons surrounding options.
- Finding & Placing Trades [26 Videos]: Successful options trading is 100% dependent on your ability to find and enter trades that give you an “edge” in the market. This module helps teach you how to scan properly for and select the best strategies to execute smarter option trades each day.
- Pricing & Volatility [12 Videos]: This module includes lessons on mastering implied volatility and premium pricing for specific strategies. We’ll also look at IV relativeness and percentiles which help you determine the best strategy to use for each and every possible market setup.
- Neutral Options Strategies [7 Videos]: The beauty of options is that you can trade the market within a neutral range either up or down. You’ll learn to love sideways and range bound markets because of the opportunity to build non-directional strategies that profit if the stock goes up, down or nowhere at all.
- Bullish Options Strategies [12 Videos]: Naturally everyone wants to make money when the market is heading higher. In this module, we’ll show you how to create specific strategies that profit from up trending markets including low IV strategies like calendars, diagonals, covered calls and direction debit spreads.
- Options Expiration & Assignment [11 Videos]: Our goal is to make sure you understand the logistics of how each process works and the parties involved. If you don’t feel confident in the expiration processes or have questions that you just can’t seem to get answered, then this section will help you.
- Portfolio Management [16 Videos]: When I say “portfolio management” some people automatically assume you need a Masters from MIT to understand the concept and strategies – that is NOT the case. And in this module, you’ll see why managing your risk trading options is actually quite simple.
- Trade Adjustments/Hedges [15 Videos]: In this popular module, we’ll give you concrete examples of how you can hedge different options strategies to both reduce potential losses and give yourself an opportunity to profit if things turn around. Plus, we’ll help you create an alert system to save time and make it more automatic.
- Professional Trading [14 Videos]: Honestly, this module isn’t just for professional traders; it’s for anyone who wants to have eventually options replace some (or all) of their monthly income. Because the reality is that mindset is everything if you truly want to earn a living trading options.
Option Trader Q&A w/ Kevin
Trader Q&A is our favorite segment of the show because we get to hear from one of our community members and help answer their questions live on the air. Today’s question comes from Kevin, who asks:
I’m relatively new to options trading. I have a question about the debits and the credits you pay for each option contract; is there a minimum value you try not to go below? Because in order to make a profit, you would want to scale up and add more contracts, thus you would add more commission fees. I was just wondering if there was a minimum value you don’t go below because of that?
Remember, if you’d like to get your question answered here on the podcast or LIVE on Facebook & Periscope, head over to OptionAlpha.com/ASK and click the big red record button in the middle of the screen and leave me a private voicemail. There’s no software to download or install and it’s incredibly easy.
PDF Guides & Checklists:
- The Ultimate Options Strategy Guide [90 Pages]: Our most popular PDF workbook with detailed options strategy pages categorized by market direction. Read the whole guide in less than 15 mins and have it forever to reference.
- Earnings Trading Guide [33 Pages]: The ultimate guide to earnings trades including the top things to look for when playing these one-day volatility events, expected move calculations, best strategies to use, adjustments, etc.
- Implied Volatility (IV) Percentile Rank [3 Pages]: A cool, simple visual tool to help you understand how we should be trading based on the current IV rank of any particular stock and the best strategies for each blocked section of IV.
- Guide to Trade Size & Allocation [8 Pages]: Helping you figure out exactly how to calculate new position size as well as how much you should be allocating to your each position based on your overall portfolio balance.
- When to Exit/Manage Trades [7 Pages]: Broken down by option strategy we’ll give you concrete guidelines on the best exit points and prices for each trade type to maximize your win rate and profits long-term.
- 7-Step Trade Entry Checklist [10 Pages]: Our top 7 things you should be double-checking before you enter your next trading. This quick checklist will help keep you out of harms way by making sure you make smarter entries.
Real-Money, LIVE Trading:
- EWZ Iron Butterfly (Closing Trade): After nearly pinning the stock at our short strikes, and thanks to the volatility drop, we netted a $600 profit on this iron butterfly trade.
- VXX Short Call (Closing Trade): One of the most consistent and profitable options trades we can make is shorting pure volatility with VXX and today we closed this naked short call in VXX after a couple days for a $420 profit.
- DIA Iron Condor (Adjusting Trade): This neutral iron condor in DIA is need of a quick adjustment early this week as the market continues to rally. In this video, we’ll discuss why I’m adding an additional put credit spread while also choosing NOT to close out of our current put credit spread due to pricing reasons.
- COP Short Put (Closing Trade): These single short puts in COP acted as a great hedge for our other bearish bets in oil this month and helped smooth out our returns after we closed them for a nice big profit.
- TSLA Put Debit Spread (Closing Trade): Although many people thought we were crazy for getting bearish in TSLA this pre-earnings put debit spread trade made us $200 today. After the huge run up from $140 to $260 and getting some technical sell signals, we were pretty sure this stock would pull back.
- MON Iron Condor (Closing Trade): Following a huge drop in implied volatility we worked hard to close this MON iron condor trade adjusting the order multiple times to fill before the end of the day.
- IBB Call Debit Spread (Opening Trade): We’ll show you how I started searching for a new bullish trade and eventually found a low volatility trade in IBB looking for a move higher to hedge our portfolio.
- TLT Iron Butterfly (Closing Trade): Following the Brexit vote TLT and bonds traded in a nearly $8 range really quickly – even still the drop in implied volatility helped generate a $330 profit for us.
- XBI Call Debit Spread (Closing Trade): Got lucky picking the exact bottom for our entry in this call debit spread for the XBI biotech ETF which ultimately was closed for a profit of $165 today on the rally higher.
- COH Iron Butterfly (Earnings Trade): Shortly after the market open we close out of our COH earnings trade for about a $160 profit, leaving just 1 leg on to expire worthless.
- EWW Debit Spread (Closing Trade): Using some of the technical analysis signals we discovered in our backtesting research, we were able to make a quick $130 profit on this bearish EWW debit spread trade.
- IBM Iron Condor (Earnings Trade): Shortly after the market opened you’ll follow along with me as we watch volatility drop and liquidity come into the market before closing out the position for $250 profit.
- SLV Short Straddle (Opening Trade): Using our watch list software we decided to continue to add to our existing SLV short straddle position with a new set of strike prices reflective of the move lower in the ETF recently.
Thank You for Listening!
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