Limit Orders have upside!

Paul Madison on

I was reminded this morning that limit orders mean that you are willing to do the trade at that price level or better. If you are selling, the broker might get you a higher price or if you are buying back, they might get you a lower price.

Last week I had sold some $156 Covered Calls on SPY for expiration this week. I had sold them at just under a $1 premium. Yesterday I had put in a Buy-To-Close limit order to buy them back if they dropped to $.15. I did the trade as a Good-Til-Cancelled order as I was not sure how often I was going to be able to check on them.

The option closed last night above $.40 and so the order was still in place. However with the weak jobs report and the large price correction on the open, my limit order was filled. But was I filled at $.15? No I was actually filled at $.01 as that was where the market was when it opened!

Now some of you are probably saying "yes but would you have been better off not to have Bought-To-Close the option but to have just let the option expire worthless". The answer is maybe, however by spending a very small amount of money ($1 per contract plus trade commission), my underlying SPY is freed up. Now as the market is starting to move up off of today's bottom, I am able to consider selling a CALL again for next week. Now I might not get it done today as it may not move up far enough for it to make sense. But I personally like spending that little bit of money to give me that flexibility of looking to sell a covered option again.

This phenomena of getting a better price than your limit order tends to happen most when you have an order in ahead of the open for the day (which obviously Good-Til-Cancelled can create this situation). I have occasionally seen it when the market was already open but then it is usually just a few cents off of your limit order value rather than a situation like this where it was lower by so much.

Hope you are still out options hunting and will share your experiences with the COOL_Club. Feels to me like volatility is about to move higher which will give us fatter premiums. Nice.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

charles brunell on

Hi Paul

I have a question, you said: Last week I had sold some $156 Covered Calls on SPY for expiration this week. I had sold them at just under a $1 premium.

Do you normally sell your weekly options the week before there expiration? Is it because you can get a better premium or are there other reasons?

I know when I'm selling weekly options on the SPY I usually wait till Monday or Tuesday, less time for bad things to happen.

CHUCK B

From: Paul Madiweeklyson <TheCOOLClubDude@gmail.com>
To: cool_club@bivio.com
Sent: Friday, April 5, 2013 3:09 PM
Subject: [cool_club] Limit Orders have upside!

I was reminded this morning that limit orders mean that you are willing to do the trade at that price level or better. If you are selling, the broker might get you a higher price or if you are buying back, they might get you a lower price.

Last week I had sold some $156 Covered Calls on SPY for expiration this week. I had sold them at just under a $1 premium. Yesterday I had put in a Buy-To-Close limit order to buy them back if they dropped to $.15. I did the trade as a Good-Til-Cancelled order as I was not sure how often I was going to be able to check on them.

The option closed last night above $.40 and so the order was still in place. However with the weak jobs report and the large price correction on the open, my limit order was filled. But was I filled at $.15? No I was actually filled at $.01 as that was where the market was when it opened!

Now some of you are probably saying "yes but would you have been better off not to have Bought-To-Close the option but to have just let the option expire worthless". The answer is maybe, however by spending a very small amount of money ($1 per contract plus trade commission), my underlying SPY is freed up. Now as the market is starting to move up off of today's bottom, I am able to consider selling a CALL again for next week. Now I might not get it done today as it may not move up far enough for it to make sense. But I personally like spending that little bit of money to give me that flexibility of looking to sell a covered option again.

This phenomena of getting a better price than your limit order tends to happen most when you have an order in ahead of the open for the day (which obviously Good-Til-Cancelled can create this situation). I have occasionally seen it when the market was already open but then it is usually just a few cents off of your limit order value rather than a situation like this where it was lower by so much.

Hope you are still out options hunting and will share your experiences with the COOL_Club. Feels to me like volatility is about to move higher which will give us fatter premiums. Nice.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

Paul Madison on

Hi Chuck

It is one of those trade-off things. I prefer to go to the week before because there is more time premium in the option. In general there will be higher Implied Volatility as well because of going across a weekend. Both things mean fatter premiums.

But you are right there is more time for bad things to happen (which is the whole reason there is a time premium) but for me this has not been a real problem.

It is probably a personal preference. If you are selling in the same week and are happy with your returns then I say go for it.

Good question!

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

On Fri, Apr 5, 2013 at 3:35 PM, charles brunell <cbrunelll@yahoo.com> wrote:

Hi Paul
I have a question, you said: Last week I had sold some $156 Covered Calls on SPY for expiration this week. I had sold them at just under a $1 premium.

Do you normally sell your weekly options the week before there expiration? Is it because you can get a better premium or are there other reasons?

I know when I'm selling weekly options on the SPY I usually wait till Monday or Tuesday, less time for bad things to happen.
CHUCK B

From: Paul Madiweeklyson <TheCOOLClubDude@gmail.com>
To: cool_club@bivio.com
Sent: Friday, April 5, 2013 3:09 PM
Subject: [cool_club] Limit Orders have upside!

I was reminded this morning that limit orders mean that you are willing to do the trade at that price level or better. If you are selling, the broker might get you a higher price or if you are buying back, they might get you a lower price.

Last week I had sold some $156 Covered Calls on SPY for expiration this week. I had sold them at just under a $1 premium. Yesterday I had put in a Buy-To-Close limit order to buy them back if they dropped to $.15. I did the trade as a Good-Til-Cancelled order as I was not sure how often I was going to be able to check on them.

The option closed last night above $.40 and so the order was still in place. However with the weak jobs report and the large price correction on the open, my limit order was filled. But was I filled at $.15? No I was actually filled at $.01 as that was where the market was when it opened!

Now some of you are probably saying "yes but would you have been better off not to have Bought-To-Close the option but to have just let the option expire worthless". The answer is maybe, however by spending a very small amount of money ($1 per contract plus trade commission), my underlying SPY is freed up. Now as the market is starting to move up off of today's bottom, I am able to consider selling a CALL again for next week. Now I might not get it done today as it may not move up far enough for it to make sense. But I personally like spending that little bit of money to give me that flexibility of looking to sell a covered option again.

This phenomena of getting a better price than your limit order tends to happen most when you have an order in ahead of the open for the day (which obviously Good-Til-Cancelled can create this situation). I have occasionally seen it when the market was already open but then it is usually just a few cents off of your limit order value rather than a situation like this where it was lower by so much.

Hope you are still out options hunting and will share your experiences with the COOL_Club. Feels to me like volatility is about to move higher which will give us fatter premiums. Nice.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club

Malcolm Myles on

Hi Paul,

I've used limit, good till cancel orders when I'm away from the technology to my benefit before. I had a clean miss this week though - Apple CSP went and got Assigned! I own Apple again. Yesterday I could have bought back my CSP at a $1 and been happy with over $300 gain... but I rode it out. There is an earnings release on Apple due April 23rd, which means something to do with dividends hopefully, and I'll be a shareholder. AND it gives me two trading weeks to write CC on my new position before press day.

With the introduction of Mini options, I'm going to research the math this weekend and see if it is beneficial to sell (2) mini contracts of 50 w different strikes and dates vs (1) contract at 100. I am also interested in looking at writing a 50% position after the 20th - across, gasp, the earnings release. I have to get in touch with my inner leprechaun to decide if I bet black or red... but I'm leaning black for half the position.

Malcolm

On 4/5/2013 12:09 PM, Paul Madison wrote:

I was reminded this morning that limit orders mean that you are willing to do the trade at that price level or better. If you are selling, the broker might get you a higher price or if you are buying back, they might get you a lower price.

Last week I had sold some $156 Covered Calls on SPY for expiration this week. I had sold them at just under a $1 premium. Yesterday I had put in a Buy-To-Close limit order to buy them back if they dropped to $.15. I did the trade as a Good-Til-Cancelled order as I was not sure how often I was going to be able to check on them.

The option closed last night above $.40 and so the order was still in place. However with the weak jobs report and the large price correction on the open, my limit order was filled. But was I filled at $.15? No I was actually filled at $.01 as that was where the market was when it opened!

Now some of you are probably saying "yes but would you have been better off not to have Bought-To-Close the option but to have just let the option expire worthless". The answer is maybe, however by spending a very small amount of money ($1 per contract plus trade commission), my underlying SPY is freed up. Now as the market is starting to move up off of today's bottom, I am able to consider selling a CALL again for next week. Now I might not get it done today as it may not move up far enough for it to make sense. But I personally like spending that little bit of money to give me that flexibility of looking to sell a covered option again.

This phenomena of getting a better price than your limit order tends to happen most when you have an order in ahead of the open for the day (which obviously Good-Til-Cancelled can create this situation). I have occasionally seen it when the market was already open but then it is usually just a few cents off of your limit order value rather than a situation like this where it was lower by so much.

Hope you are still out options hunting and will share your experiences with the COOL_Club. Feels to me like volatility is about to move higher which will give us fatter premiums. Nice.

Paul Madison

TheCOOLClubDude@gmail.com

www.bivio.com/COOL_Club