Finally got the logic of 'selling' to close a net short combo position on IB

[ITM_Latino]

I'm fairly new on IB so I was trying to get this,

My thought process for quick decision making was that if you are net short, you buy to close the position you already sold to open (net short combo).

Initially I construct the net short position from strategy builder, set the limit price at -X.XX and never payed full attention on how the position reflected in the order entry panel.

Then I noted that you BUY the net short combo (Bull Put Spread, Bear Call Spread, Iron Condor), when I hover over the order it displays the text explaining the position you are taking: 'to buy a bull put spread means: SELL XX BUY XX'.

I got a little confused when using the 'close' button, to close as a strategy and not as individual legs, and saw that my net shorts combos are set to SELL to close.

A couple weeks ago I was thinking of writing a question to grasp the logic of this, but I think I got it.

they use that logic because of the side on the bid/ask that you are positioned when buying or selling, so in theory you'll do a quicker guesswork to decide the limit:

You BUY to open the net short position because you want to buy closest to the bid, the lowest price (for more credit), which in negative terms will be the 'higher number' (-2.00 lower/cheaper than -1.90).

You SELL to close the net short combo because you want to sell closest to the ask, the highest price, which in negative terms will be the 'lower number' (-1.00 higher/more expensive than -1.20).

Is that the logic or is there a different approach to look at it? I appreciate your insights on this.

 

[tommcginnis]

Keep playing with it.

TWS is *so* flexible, that there are 2-3 4 ways to do *anything* -- including (or, especially) constructing spreads. Unfortunately, the DUMB way that IB defaults, you are buying (oft-times) what you thought you were selling, and for a negative price. ("Huh??")

The good news, of course, is that TWS *reminds* you what you are trading, with each order.

That said, play around to the point that you can write what you think is the *logical* way to proceed, and see if you don't end up with prices that reflect real life. This will be comforting when the market is moving fast, and you're dancing hard, and "one-touch" maneuvers are working to perfection.

The thing is too, do NOT think that there is only one way to do things, that TWS is keyed onto that singular way, and that *you* are wierd because you have to reverse your intuition to make things happen. It ain't you.

I am a happy TWS user for ???13? 14? years??? A good lomg while. It's a GREAT platform. It ain't perfect. It is *increasingly* full of fluff and bullshit. It *would* be better if it were maintained with an eye towards long-term maintenance, instead of flavor-of-the-day. But TWS is whats we's gots. Celebrate the good stuff. Know that you're not alone in cursing the bad. Trade well.

 

[Option_Attack]

I think it is easier just to think like this: If you open a spread you Buy it. If you close it you Sell it. That's it.

If you buy it for a negative price that means it is a credit spread. Yeah it fvcks with your mind a little...

 

[ITM_Latino]

Keep playing with it.

TWS is *so* flexible, that there are 2-3 4 ways to do *anything* -- including (or, especially) constructing spreads. Unfortunately, the DUMB way that IB defaults, you are buying (oft-times) what you thought you were selling, and for a negative price. ("Huh??")

The good news, of course, is that TWS *reminds* you what you are trading, with each order.

That said, play around to the point that you can write what you think is the *logical* way to proceed, and see if you don't end up with prices that reflect real life. This will be comforting when the market is moving fast, and you're dancing hard, and "one-touch" maneuvers are working to perfection.

The thing is too, do NOT think that there is only one way to do things, that TWS is keyed onto that singular way, and that *you* are wierd because you have to reverse your intuition to make things happen. It ain't you.

I am a happy TWS user for ???13? 14? years??? A good lomg while. It's a GREAT platform. It ain't perfect. It is *increasingly* full of fluff and bullshit. It *would* be better if it were maintained with an eye towards long-term maintenance, instead of flavor-of-the-day. But TWS is whats we's gots. Celebrate the good stuff. Know that you're not alone in cursing the bad. Trade well.

Thank you very much for your valuable feedback, it's comforting to know that is not just me having a hard time to fully get it (I was totally trapped in the 'I AM weird' thinking for having such a hard time to grasp it).

Once I read this a couple of times is that I finally got it (I also had a problem with real time data to make things worse, but now that is solved and my workflow is getting much better):

Note on Spread Pricing
Because you can build either a debit or credit spread using the same contracts, pay attention to the pricing conventions for debit/credit spreads:

• Buying a positive price, or selling a negative price — pays a DEBIT to the other side of the trade.
• Buying a negative price and selling a positive price collects a CREDIT from the other side of the trade.

 

[ITM_Latino]

I think it is easier just to think like this: If you open a spread you Buy it. If you close it you Sell it. That's it.

If you buy it for a negative price that means it is a credit spread. Yeah it fvcks with your mind a little...

Thank your for feedback, yeah now I get 100% it and I agree that it's better for getting mechanical. (the buying at negative logic was just the missing piece of information I needed to fully grasp it).
My first exposure to spreads was with RH, they made a great job oversimplifying the stuff so even as I don't trade with them (and I have many reasons not tho use them even if I could) i'm quite sure they made my learning process much faster.

 

[tommcginnis]

ONE MORE THING!
BTW, having your TWS settings saved to the IB server and to your own computer and hell, exporting the final config to a gmail -- yeah, that's a great thing. But if IB imposes a TWS change on you that suddenly wipes out all of your settings (from column orders to hot keys to page defaults).... you are immediately 48 hours OR LONGER behind on productivity. If the market is moving at the same time, and you depend on certain visual cues in TWS (such as green or red shadings?? ), you are truly and deeply fucked.

Take the most *basic* recordings of your TWS set-up: I use a series of screen shots (similar to Windows' "Snipping Tool") and get all of your screens and order defaults, put them into a folder on your desktop, and then send the whole folder to a browser-based email account.

If you're off on vacation somewhere, and you find yourself scrambling to find 'net access and a full size screen from which to trade, and need to recreate a TWS environment that you can recognize, just to put down some smoke&flames on your account -- you'll thank me a thousand times.

This is not a question of if but of when.

 

[ITM_Latino]

ONE MORE THING!
BTW, having your TWS settings saved to the IB server and to your own computer and hell, exporting the final config to a gmail -- yeah, that's a great thing. But if IB imposes a TWS change on you that suddenly wipes out all of your settings (from column orders to hot keys to page defaults).... you are immediately 48 hours OR LONGER behind on productivity. If the market is moving at the same time, and you depend on certain visual cues in TWS (such as green or red shadings?? ), you are truly and deeply fucked.

Take the most *basic* recordings of your TWS set-up: I use a series of screen shots (similar to Windows' "Snipping Tool") and get all of your screens and order defaults, put them into a folder on your desktop, and then send the whole folder to a browser-based email account.

If you're off on vacation somewhere, and you find yourself scrambling to find 'net access and a full size screen from which to trade, and need to recreate a TWS environment that you can recognize, just to put down some smoke&flames on your account -- you'll thank me a thousand times.

This is not a question of if but of when.

Thanks for the heads-up! I was absolutely unprepared for that possibility.

 

[destriero]

Don't get stuck on what IB terms a position. Calling a short iron fly a condor, etc. You can setup custom spreads on the quote pages and quote them individually as if they are in excel. IOW, quote a natural (call or put fly) or a iron. It can get confusing when you're new and you see a credit showing--whether you need to hit the bid or offer and up/down tick on price.

I would not want to be reliant on IB's templates or McGinnis. He's an idiot.