It seems like most traders constantly struggle with getting options orders filled. Since we never suggest using "market orders" as a quick fix for entry problems, I'm offering five quick tips for smoother option order execution. Hint: #2 is the most common mistake and the easiest one to fix right away.
Trading Bot Update - New Smart Pricing Feature
- Bots will go in when they start making automatic trades, and start entering multiple orders at more favorable pricing and start working their way up from there.
- The bots work for you, using automation and rapid order flow to help with smoother order execution.
- For example, if you are trying to enter a new trade and the mid-price is $1, the bot will go in and automatically start entering orders for something lower than $1 so that you could potentially get in and pay something lower than a dollar. Or, if you are selling options, the bot will go in and start trying orders in different markets for option prices higher than $1, trying to help you get better pricing then working towards the mid-price.
Improving Order Execution
1. Target Liquid Tickers and Options
- Often, traders are simply targeting the wrong tickers and options.
- The easiest way to get smoother execution is by trading the highest liquidity tickers and options.
- This will include ETFs and branded stocks (Tesla, Facebook, etc.), which will naturally allow you to get into trades much smoother.
2. Be Patient
- The key is to be patient and let the orders come to you.
- Place your order and then just be patient -- don't adjust too quickly and let the order come to you.
- A lot of the trade entry smoothness is a self-reflection of how aggressive or how paranoid we become as traders when trying to get into new positions.
3. Enter Orders At a Penny Above or Below the Mark Price
- This is something that will be automatically done for you using the Option Alpha Smart Pricing Feature.
- However, if you do not have that capacity, you want to enter an order that is just slightly favorable than what's out there right now.
- You do not always have to go after the midpoint mark; try to stretch the market and see if you can fish for traders willing to sell or buy above or below the mark.
- For example, if the options contract is trading for $0.50 and you want to sell it for $0.50, oftentimes, if you enter an order for $0.51, you will get filled right away. That is because someone is willing to pay one dollar higher when you are willing to accept one dollar higher in potential premium.
4. Use the Best Execution Tag
- This comes standard for most order entries.
- On the furthest right-hand side of the order entry, there is a drop-down menu that says "exchange.”
- You can actually specify which exchange your options contract order goes to or where you want to fill your options contract.
- Make sure that it is defaulting to the best exchange so that the contract gets filled at the best possible price.
5. Readjust Slowly
- At some point, you do need to adjust your pricing.
- Between the time you enter the order and the present, the market may have moved dramatically.
- Only readjust if there has been a significant change in the underlying price or volatility.
- If the contract is still sitting at your mid-price and the order is just not filling, you don't need to adjust unless you absolutely want to get into the position.
- Often you could just let the order expire and re-evaluate it the next day — don't be too frantic to get into positions.
- If you do need to adjust, adjust slowly: wait 20 minutes, readjust the pricing by a penny or two, wait another 15-20 minutes, and readjust again by a penny — this is where using a mobile device becomes really useful in making these adjustments.