Should these limit options orders fill?

September 18, 2010 by  
Filed under Option Trading

If you don’t actually trade equity options, please don’t answer. I need answers from people who have actual experience buying and selling options for real money.

(Note: I have traded options in a limited capacity for 8 years so I am not a neophyte. )

I am testing a new options strategy on SPY, the SPDR for the S&P 500 which is very active both for the security and its options. My strategy depends on getting in and out at prices of my choosing. I have been using the Virtual Trading engine at OptionsXpress to test my strategy and have found that it is not unusual to submit a limit order at the bid or ask and have it not fill. I am not placing large orders; a transaction of 5 or 10 contracts is typical. Consequently, it seems strange for me to enter a sell contract at 3. 25 and see the Bid/Ask sit at 3. 15/3. 20 and yet my order can spend several minutes in an open state. I understand that OE’s Virtual Trading is pretend so I am trying learn if in the actual markets, a small order at or better than the current price would be executed.
Thank you for your answer. I guess maybe my question wasn’t completely clear. I was trying to indicate that my ask was at or below the lowest bid (or that my bid was at or above the lowest ask), in other words that I was seeing a situation in which my transaction should have been executed but wasn’t and would stay open for an extended period. I have found that if I do market orders I get unpredictable fill prices so I would enter an order at a point such that I would know where it would fill if it did in fact fill.
Concerning “large orders” that was also part of my confusion. It was my thought that small orders at the proper bid or ask should execute. I could understand if an order for 500 contracts were to remain open but people actively in the market seeing an order for 10 contracts at the ask price would snap it up as easy money in a rising market trend. I am intentionally trying to keep my contract sizes such that there would be no impediment to my order being filled.
I see now that as hard as I tried to write my original question correctly I got it wrong and wrote my entered ask above the lowest ask and proposed a situation that would not result in a sale.

Comments

2 Responses to “Should these limit options orders fill?”

  1. Net Advisor on September 18th, 2010 3:29 am

    Little housekeeping first.

    5 or 10 contracts would not be deemed as a “large order,” especially trading the S&P. A large order might be greater than the prevailing bid/ask volume, or for the S&P 10,000 contracts on a single tape.

    I trade the S&P in high frequency, mostly the puts over the last 2 years.

    If you are looking to sell to open or close @ 3. 25 when the B/A is 3. 15 x 3. 20, the order would not be filled as you would be above the ask by 5 cents, and above the bid by 10 cents. The Bid needs to be hit to try and fill the order assuming there are not other orders ahead of you. This is where time and sales, directing orders to different exchanges, having Level 2 capability is CRITICAL for stock and options trading.

    Trading on hypotheticals is a good learning experience, but as you know trading in real time, in real markets is a completely different experience.

    Good Luck!

  2. zman492 on September 18th, 2010 4:18 am

    I believe that there are some orthographic errors that do that their confused question. You have said captured the error in the original question on the price, but also &quot was said later that; my question was equal more or below the supply baja" , when I suppose that you meant " my question was equal or inferior to best postor." The part of its question in specific that did not enter great orders it was clear, I believe that the first person who responded simply read the question badly. Now, as far as the question in itself, when choosing a series very active option, like spy, and by the election of the limits, you must obtain fills immediately almost all along. If a market of &quot exists; rĂ¡pido" in that the index is changing quickly feels a little less probable that immediate one fills one since the market can move while they are entering his request. If commerce tries less active options, including the options that are SPY prices of exercise very far from the present index, it is less probable to secure his full commerce. When the commercial options less liquid than is not rare to receive a partial filling with the types of orders that are indicated. There are no guarantees, but reason why it indicated that it does not hope that you have no difficulty to arrive immediately fills the great majority of the times. It does not forget that if a position is moving against you and you need an immediate filling to protect yourself always can be used an order of market instead of a limit order.