Swing Trading Options - Market or Limit orders?

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benjjj6

Hi

If you were intraday swing trading Options contracts on the SPY would you prefer to use Market or Limit orders to get in and out of positions?

I ask because Linda Raschke in the article below says "Place your orders at the market.". Although she is not swing trading Options she is still swing trading, why would she recommend this?

http://www.traderslog.com/swing-trading-rules/

From my beginner knowledge I have only read to use limit orders to ensure you are not given a bad fill.

Thanks
 
Quote from benjjj6:
From my beginner knowledge I have only read to use limit orders to ensure you are not given a bad fill.
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That is a myth written by someone who doesn't know what they are talking about.

I would always use a market order, they get filled instantly and sometimes at a better price than what is quoted. Limit orders are "penny wise pound foolish", your order might not get filled because the SPY is moving in YOUR direction.
 
Quote from FXforex:

That is a myth written by someone who doesn't know what they are talking about.

I would always use a market order, they get filled instantly and sometimes at a better price than what is quoted. Limit orders are "penny wise pound foolish", your order might not get filled because the SPY is moving in YOUR direction.
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Thank you! I need people like you with practical knowledge to help me in my learning curve. Trying to learn about trading from the internet at large is near impossible, 99% of search results are just articles written to get a website high in Google just to sell a product to you. I realised that the quote about "90% of all traders failing to make money" is even worse than it sounds since it is likely those 90% that are teaching me to trade.

It's funny because I had read about not using market orders so many times but from sources that in hindsight were obviously not reputable.
 
I would strongly recommend always using limit orders when trading options (if you are trading the underlying that can be a different matter). You can get killed on the slippage if you do not. At-the-money SPY options can have very narrow spreads but it is still a good practice to follow even if the b/a spread is a penny. If the market is moving fast and you are desperate to get filled immediately, just enter a limit price with a little bit of a price cushion. A limit order protects you against the spread widening as you are entering the order, and on all but the most liquid options will save you a lot of slippage. Many options and especially spreads have wide bid-ask spreads, and on liquid options you can generally get a fill pretty close to the midpoint between the bid and the ask by using a limit order. I cannot remember the last time I used a market order for options.
 
Quote from noregrets:

I would strongly recommend always using limit orders when trading options (if you are trading the underlying that can be a different matter). You can get killed on the slippage if you do not. At-the-money SPY options can have very narrow spreads but it is still a good practice to follow even if the b/a spread is a penny. If the market is moving fast and you are desperate to get filled immediately, just enter a limit price with a little bit of a price cushion. A limit order protects you against the spread widening as you are entering the order, and on all but the most liquid options will save you a lot of slippage. Many options and especially spreads have wide bid-ask spreads, and on liquid options you can generally get a fill pretty close to the midpoint between the bid and the ask by using a limit order. I cannot remember the last time I used a market order for options.
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Thanks for your help, I appreciate it. Its good to get the experience of all different traders. Would you recommend limit orders to get out of day trading option positions too?

Trouble is what if the market is moving fast; you submit a limit order and by the time you realise you are not getting filled the price has moved and decreased your profits.

So is it a trade off between the cost of slippage vs the cost of missing your target?
 
Quote from benjjj6:

Trouble is what if the market is moving fast; you submit a limit order and by the time you realise you are not getting filled the price has moved and decreased your profits
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+1

That's why I posted that limit orders are "penny wise pound foolish" :) What is the point of a limit order that doesn't get filled because the market is moving in YOUR direction, but it gets filled if it moves AGAINST you? :eek:

Best to try a few trades with market and limit orders and see how they work out for you.
 
Quote from benjjj6:

Thanks for your help, I appreciate it. Its good to get the experience of all different traders. Would you recommend limit orders to get out of day trading option positions too?

Trouble is what if the market is moving fast; you submit a limit order and by the time you realise you are not getting filled the price has moved and decreased your profits.

So is it a trade off between the cost of slippage vs the cost of missing your target?
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I recommend to always use a limit order. As far as the tradeoff between slippage vs. missing your entry, I think that for trading options that is generally a false choice. Tomorrow during regular trading hours, look at a few liquid tickers and the bid-ask spread of their options. You will see that if you are always using market orders that slippage over time will take a big chunk out of or eliminate your potential profits. For non-SPY options, especially in-the-money, it's simply untenable to imagine always using market orders. Finally, I feel obligated to mention that if you are planning to daytrade, you might explore trading the underlying rather than options. The additional slippage and commissions from options can be difficult to overcome. Good luck to you.
 
Quote from noregrets the dummy:
You will see that if you are always using market orders that slippage over time will take a big chunk out of or eliminate your potential profits.
More...


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