Vertical Spreads + Bracket Orders

T

TheBOT

I'm new to TWS and I know how to place vertical spreads, However, I want to learn how to attach Bracket Orders to them.

Specifically, I want to set my Profit and Stop Loss targets based on a percentage of the fill price (using the 'Parent Order' parameter). So, let's say I sell a Put Credit Spread and the fill price is $1.00. I want to take profit when I've made an ROI of 20% ($20) on the fill price but I want to sell the Option if the fill price drops in value by 10%.

Am I understanding the mechanics of the Bracket Order correctly?

Is TWS even capable of creating Bracket Orders using parameters like that? If so, which tool do you use to manually attach Bracket Orders to vertical spreads?

Is 10% too narrow of a value to use for the Stop Loss? I don't want my Sell order to get triggered prematurely by a retracement.

I hope someone reading this has the answers because so far this has eluded me. TIA for reading and for your input/advice.
 
A bracket order consists of three parts: (1) the opening order to open a position, (2) the stoploss order, and (3) the profit taker order. All three orders are submitted at the same time. At the time of submission is the opening order (1) not yet filled. Therefore the fill price is not known. Because of this can you not define closing orders (2) and (3) as a percentage based on that fill price.
A way around this is to estimate what the prices for (2) and (3) would be and use those values when you place the bracket order. Then wait until the opening order has filled, note its fill price and then adjust the prices for (2) and/or (3) if you wish.
 
Drawdown Addict said:
Do these videos help?


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Well... possibly. LOL He does go over creating one for a Naked Put but he specifies dollar amounts. I may have misunderstood what types of values can be specified in a Bracket Order. I was thinking I could specify these values as percentages of the premium but I don't think you can do that. I have to calculate the target percentages for the PT and SL values in their equivalent dollar values. So, for example if I collected $100 in premium and wanted to cash out when my ROI was 25% ($25) I would have to enter $75 in the PT field as the "Buy Back" amount. If the trade went against me and I didn't want to lose more than 10% ($10) of the premium I would have to enter $110 in the SL field.

At least, I believe now that that's how I would have to enter the Bracket Order parameters.
 
Hello HT and DA,

OK, so I finally figured out how to get my Credit Spreads to populate in the Order Entry window so I can attach a Bracket Order. Geeze Louise, TWS is not an easy platform to work with.

I placed a trade today using both Profit Taker and Stop Loss values. However, I'm now questioning whether I entered the Stop Loss value properly. I have a couple questions about that that I hope you can answer:

2) Is it possible to go back and adjust the Stop Loss value after the order is submitted to market and filled?

The first question requires explanation using a hypothetical trade scenario...

Let's say I sell a Put Credit Spread and collect $1.00 ($100) in premium. If I was only willing to take a 10% hit before I closed the trade for a loss what value would I enter in the Stop Loss field? Would it be $10 (10% of $100)? Or, would it be the premium ($100) + $10 -> $110? I'm thinking the former but I'm uncertain.

Please let me know if you either of you can clear this up for me. TIA!
 
TheBOT said:
2) Is it possible to go back and adjust the Stop Loss value after the order is submitted to market and filled?
More...
Yes, as long as an order is not filled are you able to modify the price in TWS. Go to the order window in TWS, search for the order you want to modify, and click on the price you want to adjust. Then you (most likely) need to confirm the modified price.
I am not very familiar with TWS, but seem to recall that you could also modify prices in a chart. If you bring up a chart of the option you can see horizontal lines of the open orders. You can "drag&drop" those lines. This will modify the price of that order.

I am not familiar with options trading, so I can't answer your other question.
 
Filled orders cannot be modified, they become positions after they are filled.

I guess that you meant that you would like to modify the stop order after the parent has been filled. The stop order is an independent order linked to the parent. All orders that are part of the bracket order are treated like independent orders. The only point to have in mind is that if you cancel the parent order, all remaining orders of the bracket will be cancelled automatically. That's the benefit of using the bracket order, essentially any action on the parent will propagate to the children orders.

So as long as the stop order has not been filled you still can modify the level
 
TheBOT said:
I'm new to TWS and I know how to place vertical spreads, However, I want to learn how to attach Bracket Orders to them.

Specifically, I want to set my Profit and Stop Loss targets based on a percentage of the fill price (using the 'Parent Order' parameter). So, let's say I sell a Put Credit Spread and the fill price is $1.00. I want to take profit when I've made an ROI of 20% ($20) on the fill price but I want to sell the Option if the fill price drops in value by 10%.

Am I understanding the mechanics of the Bracket Order correctly?

Is TWS even capable of creating Bracket Orders using parameters like that? If so, which tool do you use to manually attach Bracket Orders to vertical spreads?

Is 10% too narrow of a value to use for the Stop Loss? I don't want my Sell order to get triggered prematurely by a retracement.

I hope someone reading this has the answers because so far this has eluded me. TIA for reading and for your input/advice.
More...

Personally, I would not use the percentage of the option value as a trigger for stop loss on the option because the market makers can widen the bid/ask spread and then you get taken out from a perfectly good trade, especially since you mentioned the drop by 10% in the option value would trigger it.

I’d rather use a violation of certain level (e.g. support/resistance) on the underlying to trigger the stop loss on the option. This can be done on TWS, because I did it before, you just need to go through the IB's tutorials.

Also, unless you’ll be trading the most liquid options (eg. SPY, QQQ, IWM, etc), I would not be too keen on using market orders. It's up to you decide of how much of an edge you're willing to give away for the convenience of GTC market orders. It can a be a lot once you deviate from the most liquid options.
 
OK - I finally figured out how to use Conditional Orders instead of Stop Losses to close losing trades. Man, TWS is not an easy trading platform for the uninitiated. So, for those that are still trying to figure it out this is how you do it:

NOTE: Your trade order must be submitted to market and filled BEFORE you can create any conditional orders for it.

- Right-click on the order under the Portfolio tab > Trade > Order Ticket
- Click on the 'Sell' radio button and specify your Order Type and Limit Price
- Change the 'Time in Force' drop-down setting to GTC
- Switch to the Conditional tab and click the Add button
- Choose 'Price', enter the underlying's ticker, and change the Operator symbol to '<='
- Enter the underlying's price at which you want the Sell order to be triggered
- Click the checkbox if you want the Sell order to be triggered outside RTH
- Click the 'Transmit' button and it's done!
 
Bodrey said:
- Click on the 'Sell' radio button and specify your Order Type and Limit Price
More...

This can be optimized . No need to estimate any price by using advanced orders.
SNAPTOPRIM : sells @ask
SNAPTOMID : sells @mid
 
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