The Complete Guide to Option Strategies: Advanced and Basic Strategies on Stocks, ETFs, Indexes, and Stock Indexes

CHAPTER 31

Placing an Order

Learning how to place orders for stocks is rather straightforward because you typically buy a stock and sell it later, and although you can sell stock short, many individuals never sell stock short because of the risk or the method’s unfamiliarity. However, with options, you have many more decisions to make. Whereas a stock trade is usually concerned with the number of shares to buy, an option order is concerned with the number of contracts to buy or sell as well as what strategy is best, such as a long or short call or put, vertical spread, iron condor, ratio spread, backspread, straddle, strangle, butterfly, condor, time spread, diagonal spread, double diagonal spread, or covered call or put. A theme of this book is that you should learn how to trade options on different instruments; consistent with that theme is learning the different types of orders. This chapter will describe types of orders, strategies to use when placing orders, negotiation of the bid/ask spread, and commissions.

OVERVIEW

The mechanics of placing an equity option order are similar to the mechanics of entering an order for stocks. You execute a trade through your trading platform, online, or by calling your broker. You should have a trading platform supplied by your broker (or software provider) that automatically establishes simple and complex option orders to open or close positions. There are more than a dozen types of orders you can place for stocks. Similarly, you can ...