Entering Option Orders

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Contract specifications, market behavior, exchange trading hours, money management, risk-reward parameters, and market analysis to name a few. And, of course, order entry. The types of orders available and how they differ, what to expect when placing orders, and how to enter orders properly are fundamental to the art of successful trading. That does not mean knowing proper order procedure will make you a great trader, just as knowing how to dribble a basketball does not make you Michael Jordan. But, not knowing how to place orders properly could have a negative impact on your trading results. Trading can be profitable; trading can be fun; trading can be a huge ego booster. Trading can also produce the opposite of those positive effects. The difference is not luck. The difference is mastering the trading business through learning and experience, the same way we would expect to achieve positive results in any new venture. We have tried to present this information on order entry in a straightforward, easy to follow format, and we hope that it will add to your fundamental knowledge about trading successfully. One of the most important aspects of successful trading is learning to enter orders correctly. You can analyze markets, subscribe to the best trade recommendation services, and learn to employ sound money management techniques, but if your order goes in incorrectly, you will not get the position or market action you expected. Proper order entry is one of those basic, fundamental actions that should become second nature to you. You must enter your orders properly each and every time, and all orders must contain vital pieces of information. Identification: Identify yourself with your account number. When entering an order by telephone or computer, the first information conveyed is your account number. A brokerage firm will not execute an order if the company cannot identify the trader. The receiving computer, the phone clerk or the broker will use that number to identify you and determine whether or not there is enough equity in your account to cover margin requirements for new positions. Market Action: Buy or sell. The broker must know whether to buy or sell for your account. Remember, if you hold a short position and are liquidating, or covering that position, your order is to buy, not sell. Under stressful conditions a trader might think, “I have to get out of my short position right now,” and enter an order to sell the position. Instead of offsetting the short position by buying it back, such a mistake would actually double the short position. Quantity: Number of contracts to buy, sell, or spread. Keep in mind that it’s possible to receive a partial fill when entering multi-contract orders, such as entering a 5 lot and getting filled on only 3 of them. It is also possible to receive different fill prices, such as a 4 lot order where 2 are filled at $3.00, 1 is filled at $3.10, and 1 is filled at $3.20. Contract, Month and Year: This is a description of the option being traded. Identify the month and year in which the option expires. When entering orders by telephone; say the description and month. When entering the order by a computer, follow the instructions on the screen (usually choosing the description, then proper month and year from a pull-down menu). Opening or Closing a Transaction Placing an option position in your account (either buying or writing) is an opening transaction and adds to the option’s open interest calculation by the exchange. Removing the option position is a closing transaction. Most computer trading systems will ask you specific questions about the topics discussed above and will display a list of answer choices. Using an example, assume that you are on-line and entering an order to “SELL 5 DECEMBER 510 OEX PUTS at 30 to CLOSE”. The on-line program will require you to: - Identify yourself with an identification number and log-in number to gain access to the system. It will then take you through the proper sequence for entering an order. - Buy or Sell = Sell - Quantity (or Number of Contracts) = 5 - Month and Year = December, 2013 - Contract = Strike Price “510”, Contract “OEX”, and “Put” - Type of Order = “Limit Order”, Limit Price “30” - Open or Close = Close The screen will display your order in printed form and give you the opportunity to make any corrections. If the order is correct, many systems will then display the order as it looks on an order ticket, at which time you activate the order and send it in. [Read More]( [www.tradewins.com]( [Facebook]( [Twitter]( [LinkedIn]( [Youtube]( [Better Business Bureau]( © Copyright 2018 [TradeWins.com](. All rights reserved. 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