Condor Options

Sometimes, you’re making a completely reasonable request, and Mr. Market decides to be an obstinate jerk.  Yesterday afternoon was a great example of this: we were routing some ordinary, run-of-the-mill spreads, and trades that normally should have been filled right away at the mid price (halfway between the bid and the ask) just sat there, even after a morning of easy trading.  Market conditions have a lot to do with it: generally speaking, faster-moving markets will be more difficult to trade than slower ones.

There’s no magic price that the market owes you.  We’ve talked about getting your orders filled before, but here are some more general rules of thumb that can help you get in and out of positions in a timely manner:

1. Use limit orders.  Never, ever use a market order to fill an options trade.  You might as well call the floor of the exchange and just ask them where to send the check, because using a market order literally means you’re giving the market makers free money.  Always use limit orders.
2. Use day orders.  Never, ever use a GTC order to enter or exit a trade.  Only use day orders.  An underlying can gap up or down dramatically overnight, and if you have a good-till-canceled order just dangling out there, it can easily get picked off during that opening gap.
3. Be miserly.  If you place an order and get filled instantaneously, something has gone horribly wrong.  You read that right.  Basically, an instantaneous fill means you might have just given up a few cents needlessly.  Even if you’re richer than God, it’s worth it on principle alone to spend an extra minute or two to see where the real price is, and see if you can do better.
4. Split up your order.  If you’re not paying a ticket charge for every order, then from a commissions standpoint, it doesn’t matter if you route 1 contract 100 times, or 100 contracts 1 time.  So decide what your allocation is going to be, and send half of it out at the likely midprice (halfway between the bid and the ask, or as close to that as possible).  Keep adjusting and rerouting that first half until you find the spot where fills are very easy, and then for the second half of your allocation, be more aggressive with your order.
5. Be flexible.  You can be miserly and flexible at the same time - it’s all about negotiation.  Unless you’re trading an open outcry product, filling orders means interacting with a giant server in a refrigerated room somewhere in a secret basement in lower Manhattan.  Computers don’t get tired or hungry or have sympathy, so if you’re trying to fill a trade at, say, $0.63, and the order just sits there for twenty minutes, guess what?  Either the market or volatility will have to move enough to change conditions in your favor, or you’ll have to adjust your price.  Sometimes it’s better to have the position you want at $0.61 than no position and the cold consolation that you didn’t give in to a stupid computer.
6. What if you’re in a hurry? If you absolutely have to route a trade on the way out the door, you still don’t have to get taken advantage of.  Try this: find the midprice of the trade, hit send.  Wait ten seconds.  If nothing, give it two or three more cents against you, then send. Rinse and repeat.  Example: you’re routing a 4-legged spread with a bid of 0.43 and an ask of 0.61.  The midprice there is obviously 0.52, but nobody owes you 0.52.  You can try at that price, wait, then cancel your order and replace it at 0.50.  You could probably fill quickly at 0.46 or 0.48 without too much hassle.  You might save a few bucks this way, and at least you won’t be sitting through your kid’s baseball game wondering if that order ever got filled.

Some traders spend hours and hours poring over pricing data, charts, technical indicators, Greek values, and whatever else, but then roll over and play dead when it comes to routing trades.  Think of getting your options trades filled as a battle, or as a negotiation: on the one hand, you should never just give in and take whatever price the market offers, because you can always do better than that; on the other hand, knowing when to give a little is an important skill to develop if you don’t want to spend the rest of your life haggling over pennies.