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contingent order

Discussion in 'Options' started by Al G., Aug 12, 2015.

  1. Al G.

    Al G. Well-Known Member


    I entered a contingent order to buyback a call spread if the short call (Mark) reached 1.5x the original selling price. This was to flatten the T+0 line of my weirdor if the price were to go up. Funny thing is that the order was executed today because during the morning the Bid reached $1 and ask spread was so wide that it hit the mark price of my contingent order. Keep in mind that the RUT was down all day and my call short was at around a 12 delta.

    Has this happened to anyone before? If so any suggestions on a better way to enter a contingent order.

  2. GreenZone

    GreenZone Well-Known Member

    Hi Al

    Yes, I've heard of this kind of thing happening to various traders.
    When it comes to using a contingent order which is triggered based on the price of the option, I'd suggest only doing this for taking profits.
    If you want a contingent order to adjust your position when it's getting into some level of pain, then I'd suggest setting the trigger to be the price of the underlying rather than the price of the option itself.
    So use your trading software to determine at what price (eg of SPX or RUT) you'll be at your adjustment point, and then set that as the trigger for the contingent order.
    Yes, this means that you'll have to potentially update your contingent order every few days, since it's based on the price of the underlying rather than the price of the option, but this is the only way to not suffer the consequences of what you've described.
    In ThinkOrSwim, you can also use contingent orders to trigger based on the delta of a particular option, as well as technical studies.
  3. Al G.

    Al G. Well-Known Member

    Thank you, this was very helpful.

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