Be in Two Places at Once Today (and Still Make a Killing)

Equally important is knowing exactly how to get in and get out of your trades… without wasting your entire day in front of your computer.

And nowadays, people are more likely to buy and sell their stocks, options, and other securities online instead of calling their brokers.

No matter what you’re buying and selling, you ultimately want to make money by taking in more money than you spent. You can buy-to-open and buy-to-close, and you can sell-to-close and sell-to-open. No matter what you do, or the order in which you do it, you’re “placing an order.”

There are a variety of types of orders you can place (such as market, limit, buy- or sell- to-close, stop loss, and stop limit orders). And while many factors can determine the profitability of your trades (like timing and the movement of the underlying stock), the type of order you place can also have a huge impact on how your trade works out.

So today, we’re going to look at the three most effective orders you can place to maximize your profits.

But even better…

With these simple orders, you can go out and live your life – instead of chaining yourself to your computer all day.

Let’s jump right in…

1. The Limit Order

A limit order is an order to buy or sell a security at a specific price (limit) or better. In the world of options, you would use this order to limit the price you pay to buy or sell an option – either to open or close an options trade.

Here’s an example…

Say you’re looking at a September $35 Call option with a bid price of $3.50 and an ask price of $3.40. You believe the stock is poised to go higher, but your strict money management rules tell you that you can’t spend more than $3.50 per option contract (remember that one contract lets you control 100 shares of the stock).

You already know that a market order leaves you vulnerable to whatever the current price is or what the market maker prices the option for… so you’re stuck with whatever price they fill you at the moment they decide to give it to you. And in a fast-moving market, where prices are constantly running amok, this option premium can easily pop up from $3.50 to $3.70.

Now you may think a mere 20 cents more for a trade isn’t an issue. But here’s why I caution you against chasing the trade….

Think of chasing an options trade like speeding. You may feel pretty comfortable exceeding the speed limit by a mere five miles per hour (mph). After all, it’s only five mph, right? But you may soon feel compelled to push the speed limit by 10 mph… and the next thing you know, you’re flying down the road and putting others’ lives – and yours – at risk.

I know this may be a bit dramatic, but the point here is to keep your discipline. The more and more you chase after trades, even if just by pennies, the more you place your money – and your money management rules – at risk.

But if you place a limit order for $3.50 or better instead, you will not spend any more than $3.50 to get your trade filled. What’s “better” is that you can’t spend over $3.50, but you can certainly spend much less. For example, you may get your trade filled at $3.40 or $3.30. In this case, any price lower than $3.50 is better. So you will either pay your specified price of $3.50, or you will pay a “better” price that is anything lower than $3.50.

Let’s look at an example of how a limit order looks on an options order form. Remember that the example I used is simply to show you what a limit order looks like – this is by no means a recommendation.

Here, we’ve got an example of using a limit order to enter or open an options trade, whether it’s a straight call or put or a loophole trade.

Using an automated trading platform, this order allows you to have your account electronically place one order and cancel the other automatically. This  type of order is primarily used when you have open positions, but you can’t be in front of your computer to manually enter and cancel orders.

We’re going to look at an example of an OCO order on an options order using the AAPL Oct $110 Calls for $5.00. Remember, these examples are to show how each order type looks and are not trade recommendations of any kind…

Now let’s say that you want to double your money on these calls, but you don’t want to risk more than 50% of this trade. This means that you’d want to have a limit order to close and a stop order to preserve your capital.

In this example, you’d want to sell the option to close at $10.00 or close (stop out) the order at $2.50. You would place the two orders simultaneously on one order ticket. If the stock trades at $10.00, the account knows to automatically sell-to-close your position at $10.00. And it will automatically cancel that $2.50 stop order.

It also works the other way in that if the computer automatically sells the position to close at $2.50, it will also cancel the other $10.00 sell-to-close order.

This is an example of what that looks like:

The basic premise of using a contingent order for your open options position is that you can sell-to-close your options when the stock hits a specific price.

Let’s say that you’ve got an October $40 Call option you’ve been sitting on and that the price of the stock when you opened the options trade was $43.50. If you have an options risk graph, you can use it to anticipate the theoretical value of your option if the stock price moved higher. And if you don’t, then you can at least place an order to sell that call option “contingent” upon the stock hitting a higher price.

You would place the order through your automated trading platform as an advanced order type – specifically a contingent order. You would set the contingent order price to be triggered at the last, or latest trade so far that day at “greater than or equal to” the price you specified.

When the latest or last trade so far in the day (not the last trade of the day at market’s close) hits the price you specified or higher, the order to sell your position will be executed as a market order – since not even computers know what the price will be ahead of time.

You can place a contingent stop order as well. If you feel that a support price on a stock will get broken and cause the stock to drop big time, you can place a contingent order to sell your position contingent upon the stock’s trading price. It will trigger on the last price at “less than or equal to” the price you specified.

This is what a contingent order looks like on an options order form…