Four Easy Ways to Get Your Options Trades Filled Better, Faster, and More Profitably!
An exacerbated John B. asked me recently…
…Help! – I can’t get my options trades filled. Any suggestions??!!
Learning how to adjust your options trades so that they’re filled more quickly and more easily is an important skill when it comes to generating the kinds of profits most people only dream about. They don’t “work” the same way stocks do, and that can catch a lot of people by surprise.
Case in point, many options trade for pennies on the dollar…so getting in at $0.10 is a lot different than getting in at $0.05 because of the dramatic impact even a 5-cent difference has on your profit potential.
For instance, let’s say you buy a call option on XYZ and you pay $0.10 per contract. A move to $0.20 will double your money and result in a sought-after 100% winner. But pay just $0.05 and that number jumps to 300%.
That’s enough to turn every $1,000 invested into $3,000.
What’s more, options can and frequently do take off like a rocket which means you can make a fortune in seconds… but, again, only if you’re already “in to win.”
Flexibility is key.
Having an edge in today’s markets isn’t all that difficult, especially when it comes to options.
That is, if you can get your trades “filled.” That’s a Wall Street expression meaning that your orders get executed, one of the several expressions that I outlined for you last week.
Having the right strategy is only part of the battle.
Unfortunately, you won’t hear that from options educators who simply want to sell you the latest gee-whiz, super-secret course they’ve developed.
In fact, I’ve seen thousands of traders over the years who have paid gobs of money to sign up for these things, only to find the strategies they’ve been taught don’t work because Wall Street won’t take their trades.
Even simple trades like buying puts and calls can be problematic from time to time but, as I’m about to explain, that doesn’t mean you’re out of luck.
1. Wait for Donuts… Or Lunch
One of the very first things I learned about the financial markets nearly four decades ago was that the first hour of trading is critical. Liquidity is often higher in the morning than it is for the rest of the day because anxious traders want to put money to work and floor traders want to clear out pending orders that have built up overnight from individual investors.
Pre-market news or headlines can often accelerate this process, which is one reason you want to pay attention when you hear about which way the “futures” are moving ahead of the bell. It’s not uncommon for millions of shares to trade hands shortly after the bell rings, which means you can make or lose money in seconds.
But here’s something very few people know.
There’s often a distinct lull an hour after the opening that – believe it or not – used to correlate to the bathroom break many coffee-fueled traders would take, as well as the arrival of freshly baked donuts.
Lunch was much the same way. There was a definite drop in activity when floor traders went out the door, having placed their trades for the day. Sometimes you can still see that if you’re tracking intra-day volume which is why I’ve always wanted to develop a “hot dog” indicator, but that’s a conversation for another time.
Admittedly, computerization has changed this somewhat today but not as much as you’d think. So try placing your orders when there’s a lull in human activity at either of these points… the mid-morning break or lunch time.
I think you’ll be surprised at how often you’re “filled.”
Today’s computerization can be a strength and a weakness.
I like the fact, for example, that I can place very specific orders ahead of time that will trigger precisely at price limits I dictate. What’s more, I think it’s great that I can define both profit potential and risk to the penny.
The flip side, not so much.
Computerization can actually work against individual traders by allowing big firms and the high frequency boys to pick up smaller orders at will, leaving individual traders seeking their fortune high and dry. It can take them much longer to get a fill… if they get one at all.to get a fill…if they even get one at all. Even I’m not immune!
Last week, for example, I had a plain vanilla order to buy a put spread on one of the indices, and it sat on my desktop as a pending order for over an hour, despite the fact that my order was well within the quoted price range at the time I placed it.
So, I took matters into my own hands by resubmitting the order at the same price.
Technically, this is called “cancel and replace” because that’s what happens in the order book. Your previous order gets cancelled and replaced with the current one which, of course, goes right to the top of the pile and makes it more visible.
Voila… I had my fill in seconds and was off to the races.
3. Change the Quantity
Individual investors like round numbers… 100 shares, 500 shares, 1,000 shares, and so on.
That’s why it’s not uncommon, for example, for folks to trade 1, 5, 10, 20, 50 options contracts at a time. Because those are easy numbers to think about and to manage.
However, that can work against you because bigger traders cannot “pair” your order with others, which means they won’t get routed into the system.
Change that up to 3, 7, 9, 11, 15, 19, and so on, and the game changes. That’s because computers often mix and match odd order sizes together to create evenly numbered bundles that help them – the big boys – trade faster and more efficiently in “blocks.”
So try making your options orders “one offs” and letting the bigger players aggregate them for you instead of them using that same order flow against you.
4. Go for “Charm Pricing”
This similar to what we’ve just discussed.
Many individual investors use round numbers because they’re simpler to understand, not realizing this works against them because of something called “psychological pricing” or, in some circles, “charm pricing.”
You come across this tactic everyday outside the stock market and probably don’t realize it.
That’s why, for example, you’ll almost never pay $5 for something at your favorite shop. The “sale” price is always $4.99 or $99.99 – to make you think you’re getting a good deal. A 2003 study done by the University of Chicago and MIT showed that consumers will actually buy more expensive goods even when there are cheaper options if the price is perceived as “charming.”
You can use that to your advantage against bigger traders by simply changing up your “limits.” Instead of specifying “buy 100 shares of XYZ limit $50,” for example, try changing your order to reflect a price limit of $53, $201, or even $1,051.
John told me that he found our conversation very helpful and I trust the same is true for you. Little stuff like this can make a huge difference when it comes to achieving consistent profits in all sorts of market conditions that frustrate other investors.
Speaking of which, I’ll be at the Money Show in Las Vegas, on May 13 and 14, answering questions like these and talking about where to invest your money for maximum profit potential. Tickets are free, but space is limited, so don’t drag your feet. Click here to sign up.
See you there!
Until next time,