Assume that you want to arrive at the midpoint between bid and ask what is the best way to get there for a buy to open. do you start slightly above the bid and walk it up to midpoint by cancelling your order and submitting new bids until the order is filled or cancelled when midpoint is reached without being filled or would you just make an initial offer close to midpoint. If you started selling to close would you start at the ask price and walk it down to midpoint or just start close to midpoint?
Reaching midpoint
- Thread starter dennissr
- Start date
There is no best way. If you start just above the bid, you might get a good fill but the odds of getting it are lower. If you offer more, the odds improve but the fill isn't as good. So it really boils down to how much you want the position and how much you are willing to pay for it. If your broker offers PEG orders, use them.
Robert Morse
Sponsor
In options with wide spreads, I like the idea of having an ultimate limit and "walking the order up or down until I get there with a cancel/replace. I never just look at the midpoint and make any assumptions. I always exam the midpoint to see if that value makes sense. The midpoint often represents a consensus of fair value by the market makers but can just as often not. Two examples would be
- a customer or market making with a small bid or offer that is not tied to the automated systems.
- an DITM call or put where the bid is way below parity, or parity, where the offer is very random.
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assume that this is useless exercise and just forget about it
if you are a retail trader then buy at ask and sell at bid
if the mid-point will make it or break it for one then the one's trading method is useless
if the spread is too big then one trades the wrong instrument or the wrong time period
That is just so big-assed, hairy-assed, bizarrely, wrong.
(But I am grateful to your participation in trading the financial markets! Yes I am! Yup!)
Very well
When I submit near the midpoint I rarely get filled "soon". It might take a minute or even 10 minutes. At that point I should probably go back and see what the current bid/ask is, because I suspect I'm getting filled near the ask on a buy and near the bid on a sell.
That said, if I want X at $Y and I get it, who am I to complain? It's better than paying $1.1Y in my view.
That said, if I want X at $Y and I get it, who am I to complain? It's better than paying $1.1Y in my view.
Take bob's and qxr's reply and mix...work the order but if you can't get a fill you think will make your strategy work maybe it is the wrong instrument to trade at that time.
Example...some options only trade with a .05 spread. If you are only looking for a small move and can't buy it at the bid it prob won't work.
Also, the liquidity at the entry is indicative (usually) of the liq at exit.