Avoiding Mistakes while Executing an Options Order – Axis Direct
Feb 28, 2018 | Source: Optionalpha
Avoiding Mistakes in Execution – Options Order
As with many things in life the 80/20 principle can help guide and focus our attention on the most important aspects of options trading. In particular, trade entry and executing an options order correctly is critical to your success. We’ve often said that great entries save you from having to be good at everything else, like adjustments and rolling contracts. Today, we want to help you avoid five of the big mistakes you can fall subject to when placing a new trade. Some are small fixes while others will require a little more work on your part, but ultimately help you reduce risk
•Order entry is such a big part of what we do as options traders.
•When looking at your options trading system, 80% of your focus should be on making the best possible order.
•If you take care of order entry and getting into the right positions, everything else will fall into place.
•Therefore, most of your execution and emphasis should be on order entry.
Fat Finger Trades
•This is when you get into a position and you enter a couple of extra contracts by accident.
•It can also be when you choose the wrong ticker symbol or the wrong direction
•Generally, it is when you enter a trade and you do not double check for any incorrect positions.
•Until you get more familiar with trading do one of two things:
1.Paper trade a specific strategy as many times as possible, first -- the repetition concept.
2.Analyze every single one of your trades -- add trade to portfolio Beta weighting curve to see overall impact.
Forcing Entries Because of Time
•Why do we need to rush to get trades on?
•Even when there is a time pressure, it does not mean that you need to force a trade or use market orders.
•We need to be patient with our entries and let the market "come to us".
•Enter an order and if it doesn't get executed, adjust it and see if it still makes sense.
•There is no excuse for chasing the equity market for the sake of getting into a position.
•In some cases, it make work out in your favor to wait an extra day to get a good setup.
Checking the Order Type
•This is a very simple check, but prevents you from randomly entering market orders versus a limit order.
•Sometimes the type of order ends up being a GTC, which means that the order stays active until it is filled.
•Traders assume it's a limit order for the same day, but then it doesn't get filled until a few days later.
•Same thing on stop losses, make sure you understand and check the different terminology.
Market Maker Baiting
•If you enter an order to sell an iron condor for Rs10000 and immediately when the order comes in, the price goes down to Rs9800, then you enter another trade for Rs9800.
•As soon as you enter the market for Rs9800, the market price drops to Rs9600.
•This creates a stream of baiting to draw traders in as the price adjusts.
•Instead of following the baiting stream, let the market trade around your price, wait for it to fill and see where the market truly is.