questions about condtional oder & option price

T

trader198

I trade options mainly. but I make descions based on the underlying.

for example, when my SPY hits 165, I want to buy 163put, or if I have 165call position and I want to get out when my spy hits 165.

what I did is I monitor SPY, when the price reaches there, I buy options or get out since I do not know what the option price is when the underlying reaches there .

what I want to do is: I place a condtional order, the problem is I donot know what the option price will be, if I put a market oder there to trigger when the condtion is satisfied, you know, for option, that is NO NO. but for limit order, if my price estimated higher/lower, then the order can notbe executed.

I do not know IB tws option trader has anyfunction to estimate option price. currectlyI use thinkorswim to do that.

but my main issue is when I place conditional order for options, what is tehbest strategy, limit order or market order with a range limit, I do not know there is any range oder (put a ceiling toavoid slippage)
 
I have the same question which I was about to post:

How do I place limit orders with options when my price targets are based on the underlying?

For example, when trading the underlying I would just place a limit order at 400 and when the stock reaches 400 it would be executed, if I am trading ITM options as a substitute for stock how can I recreate this limit order? So for example I could set my option stop losses at a price of the underlying.
 
one way to estimate would be to compare it to the current option chain. For example, if you want to buy option X when the underlying is $2 away from the strike, look to see what the current option which is $2 away from the strike is trading for and set your limit order to that price. Of course the orders will have to be adjusted from time to time (day to day even) as you take into account theta decay and changes in IV.
 
Haven't looked myself but, I would think there is a conditional that would execute at best bid/ask?

i.e. 'if SPY is at 162.xx, buy 163 strike call at best ask.'
 
Quote from kroponer:

Haven't looked myself but, I would think there is a conditional that would execute at best bid/ask?

i.e. 'if SPY is at 162.xx, buy 163 strike call at best ask.'
More...

Thinkorswim has this. It also allows you to specify an offset from the bid/ask.
 
So for the sake of my understanding then: even with something as liquid as SPY, a market order won't automatically give you the best bid/ask, then?
 
In the case of a some cases of a simple limit order, figure out using a model what the option price will be when the underlying gets to be where you want to act.

Then place that as an options limit order.

You cannot prudently do this for stop orders because only the underlying itself will have enough liquidity for stop orders. But if you have a large option position, you could place a stop order on the underlying to get you to about delta neutral overall. Then if filled get out of both in a somewhat more leisurely way.
 
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