This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Options Orders: How to Open and Close

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

Before attempting to open any trade the homework must have been done and the optimal tactical approach, relative to the risk/reward ratio, has been chosen (spread, shooter, etc.). All of that pre-trade work can go awry very quickly if it is not executed properly as per predetermined pricing parameters. Otherwise, it's the option trader's way of fumbling the ball on the one-yard line.

Trade execution is a learned discipline that must be adhered to, or else! That or else implies that if the trader loses his/her discipline sooner or later that trader will react on an emotional level when executing trades. Trading with emotions not held in check eventually opens the portal to Wall Street's proverbial graveyard.

My personal discipline is to open any option trade using a limit order. Do not give any trading pit a market order to fill when opening a trade! I know that fact as I was on the other side of market order executions when I was an R.O.T. (Registered Options Trader). Pit traders are not altruistic do-gooders. Thus, do not expect any nice surprises from them. Simply do yourself a big favor and open any trade using a limit order. Remember this: no one is forcing you to open a trade!

When closing a trade, using a market order tends to beget fair executions if liquidity is ample. Thus, only use a market order to close if that pit has both tight markets (bid and ask spread very tight) as well as more than ample volume in the strikes and expiries you want to close out. In addition the timing of the closing execution is a trader's ally if the trader is closing on the opposite side of the majority of that particular market. That majority will tend to bid up for your order if you are a seller and will offer nicely low execution prices if you are a buyer. They will be so nicely accommodating for you because they are the ones executing with some emotion!

Knowing what the majority's bias and position might be is an important element for any closing execution that you might be readying to attempt. Of course you can also use limits in such a situation, but be careful not to be cute or stubborn with that limit as you do not want to miss-time any closing trade.

OptionsProfits can be followed on Twitter at

EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV

Partners Compare Online Brokers

Top Rated Stocks Top Rated Funds Top Rated ETFs