A lot of people suddenly followed me today. At first I didn’t know why, because I wasn’t tagged in anything etc. Then I stumbled upon this post/list. TY for the reminder, I should post some actionable edges again. 🤣
If I get over 10k, I might do some 🧵s again.
I also have a list of people who are genuinely worth following who sometimes reveal actionable edges, obviously it’s a lot shorter https://t.co/f1mf4b3GkT
@6_Figure_Invest Ok, we have distinct terminology. If your statement boils down to “never send market orders without pre-specified price” than it is trivially correct (for any market, not specifically options) and I would subscribe to it. 🤝
I don’t understand the “you’re not guranteed to get the b/a you see” point. Obviously if you send pure market orders with no price specified than you can probably buy for infinity and sell for zero, but who does that? I meant that you send an IOC with a specified price.
Market orders trade price certainty for execution certainty, and limit orders do the reverse.
Three reasons to not use market orders for options, and two reasons where market orders make sense:
1. With a market order you are not guaranteed to get the bid/ask you see, it can change at any point, and if it does your fill won't match what you expected.
2. Unless the bid/ask spread is very tight you can often do better than the listed spread by putting in a limit order inside the spread. I usually start a the mid-price point between the bid/ask. This works particularly well with combination orders like spreads/butterflies where you are trading multiple options with multiple strikes/expirations/direction (buy or sell). Mid-price fills are common.
3. If you are trading in size, multiple contracts, then you will likely get fills at different prices, always worse than the quoted bid/ask with a market order.
When to use market orders?
1. For very liquid securities that have options with very tight spreads. The bid/ask prices are fluid and there is very low risk that your will get a bad fill
2. In fast markets where you want/need the trade to fill immediately. Chasing a market that is moving away from you with limit orders is a bad idea, the risk is much higher than the potential gain.
Limit orders for light traded ETF are often a good practice also.
https://t.co/5dVcaTEQ5C
In that case the only thing that can happen is that someone hits/lifts/cancels the level before (in which case the price is already running away from you, but no “bad” fill) or someone tightens in the opposite direction (in which case you get a better price than your IOC price).