IB TWS ... how to close option combo with unmarketable legs?

[GammaZoid]

Is there any "easy" way to omit one leg from an option combo when closing the position? When one leg is unmarketable (i.e., nearly worthless), the easy ways I know of to close the position do not work.

That is, the position will never close and there seems be no way to adjust the legs of the order no matter how I enter an order STARTING with the existing position.

I can, of course, go into the Option Trader to build an offsetting combo from scratch, but that is both time consuming and error prone. Can anyone suggest an easy alternative?

 

[tommcginnis]

Unless you want to whack your margin requirements, you need to buy back the short before selling off the long.

If you don't wish to cross the MID of the bid/ask spread, you need to put the trade on, and let it cook.

If you see only a couple-hundred contracts traded per day, you're going to have to sweeten the deal.

If you have the opportunity, look out a few expirys and plant your LONG on the strikes that have traffic -- this will improve the chances of your garnering a quick/easy exit from the long strike down the road. At that point, you put on your SHORT for the price you wish, you go away and let it cook, and when the toaster pops, you know your LONG is now on a strike with a reasonable chance (chance) of a timely exit.

FWIW, the time I have wasted trying to leg out of dead spreads..... WOW.
So, I treat it as a game, I play, I experiment, I study, I invest in this micro-market -- watching behavior, behavior+market, behavior+news/economics,..... (I try to get something more out of the trade besides just money or freed margin.)
If I needed to bust out? Fuck it. I pay the freight.

 

[GammaZoid]

Thanks for your suggestions. I intended to ask how to easily construct a closing combo with fewer legs than the opening (e.g, close three of the four legs of an iron condor, for example), but you suggest how to close the position as separate orders.

Truly, with IB TWS, I can easily create separate orders for the viable legs, and you say to buy the two short positions first (which seems manifestly a good idea). I will test the non-combo approach although I'd rather unwind "all at once" since the prices are coupled. I will take your other advice to heart as well. Thanks again.

 

[tommcginnis]

...and you say to buy the two short positions first (which seems manifestly a good idea).

It is a *fair* idea, but only when buying out of spreads just isn't getting it done for a reasonable price (which is how I read your original post...). Again, you can burn BIG time, in trying to get out of spread legs, and *honestly* -- except for studying the market acutely and watching things *very* closely {regardless of trivial market value, but just to *learn* something} -- it's generally better to go out with a spread. It boils down to, "What is your time worth?"

 

[spindr0]

Make it a habit of closing those near worthless short options. Apart from the margin issue, some have a perverse way of reincarnating and taking away good money. Offer a penny or two for them. I have found that I get better fills with spread orders than single legs - maybe because the total of two B/A spreads makes it more worthwhile for the MM? I dunno.

Re: "that is both time consuming and error prone."

When possible, make it a habit of setting up your adjustment spreads in the pre market when you have plenty of time to double check order creation . As a one leg example, if I am long a $50 call, the underlying has risen to $53 pre market and I want to roll it up, I'll use the create "Multiple" orders so that when the market opens, I can focus on the trade. IOW, set up verticals at $50/$52, $50/$53, $50/$54, $50/$55 etc. At the open, I'm ready for order placement wherever price is. The "Multiple" feature facilitates quick creation: select two strikes and click "Create", change the two strikes and click "Create" again, etc.

If it's a spread that you're adjusting, focus on the leg of value and when that's dealt with, come back to the near worthless leg.

In some cases, can use a Condor or Butterfly order to roll an entire spread. If a Condor or Butterfly isn't applicable, use the "Create Leg-By-Leg" order. I have had much less success with these but they sometimes fill.

 

[beerntrading]

I can, of course, go into the Option Trader to build an offsetting combo from scratch, but that is both time consuming and error prone. Can anyone suggest an easy alternative?

Just deal with the extra time. You'll get faster and more accurate at entering orders. A little extra practice never hurts. You'll also be more aware of how the markets work, and realize that you can get better fills on individual legs if you have the luxury of biding your time. Especially with someone like IB where there's no additional commission to using multiple orders to close the position.

 

[tommcginnis]

The opinions expressed on this page about the ins+outs of option-trading set-ups on TWS all show the experience of the individual users.

FWIW, I *can't*stand* OptionTrader, and only use it to scan what strikes are available in upcoming expirys -- that's it!
I have 3 QuoteMonitor pages set up, on which I put puts up high, and calls down low, and have the columns set up to show me 3 different areas of individual strike {right most}, current market {center} and account {left}. When I want to develop a combination contract, I put the cursor on a blank line, hit the COMBO button, and swipe in each required leg, in order of their closeness to the market. (So, a vertical put near today's SPX would be built as a 2625/20, since the 2625 is closer to the market than a 2620. Etc etc.) I BELIEVE this is backwards from the whole (idiotic!!) negative-pricing thing as-demonstrated in IB's webinars, and it allows me to BUY into things I wish to buy, at a positive price, and to SELL out of things I wish to exit, at a positive price. I THINK this is reversible for OptionTrader, but I like this intuition, and Jeez, I am lickity-spit fast. (Usually.)
Bottom line? Yeah: experiment. Work at it. "Just deal with the extra time. You'll get faster and more accurate at entering orders. A little extra practice never hurts."

And..... I almost always get a better fill on a spread than individual legs. I hate that. I still try. But there it is.

 

[beerntrading]

And..... I almost always get a better fill on a spread than individual legs. I hate that. I still try. But there it is.

Really? Mid is the best I've gotten on spreads. I've gotten hit across the spread (sell above mid, buy below) on individual contracts. Somewhat routinely--especially on OTM contracts on liquid stocks with a few DTE left.

 

[Ryan81]

FWIW, I *can't*stand* OptionTrader

Me too!
I trade options primarily by just using an option chain and opening up the "Strategy Builder" sub-window. I wish the strategy builder window defaulted to being detached too...

 

[tommcginnis]

Really? Mid is the best I've gotten on spreads. I've gotten hit across the spread (sell above mid, buy below) on individual contracts. Somewhat routinely--especially on OTM contracts on liquid stocks with a few DTE left.

I've been reading this from you and others, and I *think* I have noticed that you're all leaning on equities, whereas I'm speaking from a background of SPX/ES stuff. And if I *push* my faint memory of equity spreads......... yeah. yeah. I probably load the spread *and* the legs, and push them both until hit. Huh.
[cue Chin-Scratching Emogi]......