Do you use a limit order to "buy to close" a bull put spread?

T

trendisyourfriend

Hi guys, let's say you're selling a bull put spread and the price of the stock gets very close to the strike price of the short put. You want to buy back the bull put spread in order to avoid larger losses.

Do you use a limit order (Mid price)? or do you do a market order to get out much more quickly?

When I trade stocks and my stop loss price is reached, I use a market order to get out. Using a limit order for a stop loss can be dangerous because the price of the stock may pass through it and miss it.

What are your thoughts?

Thanks
 
Exactly trendisyourfriend. If you do not like the risk in a position, if you sit on a limit order, there is a good chance you might never get filled - unless you are ok with that you might want to be a bit more aggressive.

But with options given the spreads, you might not want to put market orders either. Perhaps start at mid and give a few cents away. See if you get filled and give in a few more cents - depending on the underlying and how fast its moving ofcourse. And if you are trading something super wide - take it as a lesson not to trade illiquid stuff and move on.

HTH!
-gariki
 
trendisyourfriend said:
Hi guys, let's say you're selling a bull put spread and the price of the stock gets very close to the strike price of the short put. You want to buy back the bull put spread in order to avoid larger losses.

Do you use a limit order (Mid price)? or do you do a market order to get out much more quickly?

When I trade stocks and my stop loss price is reached, I use a market order to get out. Using a limit order for a stop loss can be dangerous because the price of the stock may pass through it and miss it.

What are your thoughts?

Thanks
More...
In my experience, it's easier to leg out of the trade at a fill price. I always use limit order to exit. Focus on exiting out of the short (problem) leg first. I know that may people say never leg out but in my experience, when you need to exit quickly and at a good price, legging out beats a spread order.
 
Depends on the normal liquidity. No problem in options on the top 10 -15 names. The roach motels - I would work the order or walk limit the trade if that feature is available.
 
In your case,do not leg out...

Bid mid,slightly over and if that doesnt work go Market..

How do you get into the trade in the first place??

Limit,Market or Leg?





trendisyourfriend said:
Hi guys, let's say you're selling a bull put spread and the price of the stock gets very close to the strike price of the short put. You want to buy back the bull put spread in order to avoid larger losses.

Do you use a limit order (Mid price)? or do you do a market order to get out much more quickly?

When I trade stocks and my stop loss price is reached, I use a market order to get out. Using a limit order for a stop loss can be dangerous because the price of the stock may pass through it and miss it.

What are your thoughts?

Thanks
More...
 
Does this has anything to do with the construction (bull put spread) perse?

For liquid options like on spy or qqq I always use market. I often close in the last 10 minutes of trading and the market can move fast then.
For more illiquid stocks use the method @taowave described, although i never get a very favourable fill, the fill is near the ask. I often see the ask movin' because i adjust my order, so sometimes you have to make a 'fake move' yourself to get a better fill.

Just curious, you say you want to avoid a larger loss when the strike of the short put is reached.. do you set up the spread both puts dotm?
 
Not long..I NEVER let the market get away from me.One click mid,if that doesnt work I ll step up once and then lift the offer...Im assuming the markets are fairly tight,if not,I would take a good look at the slippage as it relates to vol points or Percent of what you were hoping to make
 
In the situation that you described you can defend the "Put Credit Spread" by buying a put debit spread with the "sell" side the same as your original spread. That turns your trade into a butterfly and you have locked in your total risk (price paid for the debit spread minus the credit you received on your original entry).

You have also enhanced your total profit potential if the price hovers in the area of your sell strikes.
 
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