options 101- entry strategy

[commiebat]

Quote from forex-forex:

With all the work of studying a stock why risk not getting filled with a limit order?

Why risk getting filled at a bad price with a market order?

With a limit order you specify the maximum you want to pay, or the minimum you want to receive. That means you can't get ripped off, because you will never get a fill at a worse price than your limit. Therefore, market orders are only useful if you want a fill at a worse price than your limit, which you never do - because that's your limit.

Only crazy people place an order of "give me one of those - at any price" (market). Normal people say "give me one of those - but if it's too expensive, forget it" (limit).

 

[forex-forex]

Quote from commiebat:
Why risk getting filled at a bad price with a market order?

With a limit order you specify the maximum you want to pay, or the minimum you want to receive. That means you can't get ripped off, because you will never get a fill at a worse price than your limit. Therefore, market orders are only useful if you want a fill at a worse price than your limit, which you never do - because that's your limit.

Only crazy people place an order of "give me one of those - at any price" (market). Normal people say "give me one of those - but if it's too expensive, forget it" (limit).

Only crazy people place an order of "give me one of those - at any price" (market).

You make it sound like market orders are filled at some rip-off price. I'm with InteractiveBrokers and BMO InvestorLine and 100% of my market orders have been filled at the bid/ask or better, never outside of that range. I placed one limit order between the bid/ask and it never got filled until I raised the limit price to match the bid/ask after about 5 minutes of waiting, 5 minutes is an eternity to finish off a spread.

If you have experienced being "ripped off" in the past with a market order change your broker, I recommend IB.

 

[commiebat]

Quote from forex-forex:

100% of my market orders have been filled at the bid/ask or better, never outside of that range.

So why not place a limit order at the market price? What makes you think that would turn out any worse?

If you have experienced being "ripped off" in the past with a market order change your broker, I recommend IB.

I'm with IB. And I have never placed an option market order. If I'm desperate for a fill, I offer the ask or ask the bid and always get filled. If not, I place a limit order in between.

Most of the time, you won't get ripped off with market orders. But once in a while, the market will move as you place your order and you'll get a nasty surprise. Market orders are only for people who want a position and don't care what they pay, and such people are few and far between. If you're willing to pay more than market price, there's a limit order for that too. There is no situation in which a market order is better than a limit order.

This threadjack is fun and all, but I'm still curious as to how the original poster got "ripped off" with a limit order.

 

[buybig]

"This threadjack is fun and all, but I'm still curious as to how the original poster got "ripped off" with a limit order."

Thanks fpr those who contributed valid informantion.

I never stated "i got ripped off".

I am familiar w bid/ask spreads. in this case it was .30.

I set a limit order and the market ran from it. I chased a bit and left the limit open at that point. That point is waht i was willing to pay.

The market moved back FAST and FAR. I did get filled at the limit. I would of been crushed if I entered @ market.

So back to the origional question... do you guys use specific entry methods for option trading??

 

[forex-forex]

Quote from snugglepuppy666:

I am familiar w bid/ask spreads. in this case it was .30.

I set a limit order and the market ran from it. I chased a bit and left the limit open at that point. That point is waht i was willing to pay.

The market moved back FAST and FAR. I did get filled at the limit. I would of been crushed if I entered @ market.

A market order isn't what would have "crushed you". Your limit order wasn't filled because it was too low and as you stated the "market ran from it" in your direction without you, a market order would have been filled and you then wouldn't have to "chase it".

Now you state that "The market moved back FAST and FAR", so yes the market order would have produced a slightly larger loss than the limit order which was filled because the stock moved against you. Any loss at this point is because you called the wrong direction, not type of order you used.

Quote from snugglepuppy666:
So back to the origional question... do you guys use specific entry methods for option trading??

Market Order

 

[commiebat]

Quote from snugglepuppy666:

I am familiar w bid/ask spreads. in this case it was .30.

That's a little wide for my taste, and it sounds like the options you were trading weren't that expensive to begin with, since a "FAST and FAR" whipsaw only cost you 50 cents.

I set a limit order and the market ran from it. I chased a bit and left the limit open at that point. That point is waht i was willing to pay.

Generally, I don't chase my fill unless I'm prepared to modify my limit order to the then-market price, and even then I'll only chase for a few cents.

If the market moves far from your price and you're not filled, cancel the order and re-assess if/when the stock comes back. There's no good way to know what to bid when the market is far from your price, because (as you saw) you never know how far the stock will retrace when it does, or what the retracement will do to IV.

Generally, I wait for the price I want and then place my order. And I place my order intending it to fill, somewhere between the bid/ask if there's space, because I see how it's moving now and I think that's my local best price. If I'm legging a spread or combo, I might place both orders in the middle, and when one fills modify the other order to fill immediately. That can be dangerous on fast movers, though.

After I get a fill, if the market moves against me a bit, that's just life. Nobody times it perfectly, and the bet is already placed. Now you're in adjustment territory, which is a whole other kettle of fish.

 

[buybig]

Quote from commiebat:

That's a little wide for my taste, and it sounds like the options you were trading weren't that expensive to begin with, since a "FAST and FAR" whipsaw only cost you 50 cents.



Generally, I don't chase my fill unless I'm prepared to modify my limit order to the then-market price, and even then I'll only chase for a few cents.

If the market moves far from your price and you're not filled, cancel the order and re-assess if/when the stock comes back. There's no good way to know what to bid when the market is far from your price, because (as you saw) you never know how far the stock will retrace when it does, or what the retracement will do to IV.

Generally, I wait for the price I want and then place my order. And I place my order intending it to fill, somewhere between the bid/ask if there's space, because I see how it's moving now and I think that's my local best price. If I'm legging a spread or combo, I might place both orders in the middle, and when one fills modify the other order to fill immediately. That can be dangerous on fast movers, though.

After I get a fill, if the market moves against me a bit, that's just life. Nobody times it perfectly, and the bet is already placed. Now you're in adjustment territory, which is a whole other kettle of fish.

awesome, thanks for the insight

 

[forex-forex]

You guys sure make entering a position difficult. The real reason I think you like to spend time chasing the prices around is because you have doubts about the trade in the first place and do not want it to get filled.

Sad part is the position gets filled during a move AGAINST you and unfilled if the stock moves WITH you. LOL

 

[commiebat]

Quote from forex-forex:

Sad part is the position gets filled during a move AGAINST you and unfilled if the stock moves WITH you. LOL

You mean, you get filled if the price gets better but not if the price gets worse.

With a market order you get filled even if the price gets worse. I still don't understand why you think that's a good thing. When was the last time you went into a store and said "I'll take one of these, charge me whatever you think they should cost"?

 

[forex-forex]

Quote from commiebat:

You mean, you get filled if the price gets better but not if the price gets worse.

With a market order you get filled even if the price gets worse. I still don't understand why you think that's a good thing. When was the last time you went into a store and said "I'll take one of these, charge me whatever you think they should cost"?

Pre-sale condo buyers do that in hot markets. They assume prices will rise - or as you put it "get worse" - so they buy at the current price and hope to sell higher. If they insist on a lower price - or as you put it a "better price" - then they risk not buying and missing out on the anticipated higher prices in the future.

"Shit or get off the pot" I think is a good term to describe option entry orders, whether they are Limit or Market orders.