There are many different factors that can help or hinder your trading. One that is often overlooked sometimes is the fill process itself. Risk is defined at order entry and if you are a premium seller your maximum possible profit is also. What do we need to know about getting a good fill. What are these these things?
The first thing to consider is liquidity. A table comparing liquid underlyings like SPY and AAPL to illiquid underlyings like FXB and CMG was displayed. The table showed the open interest and the Bid-Ask Spread of the at-the-money (ATM) Put with 45 Days To Expiration (DTE). A graphic comparing the bid-mid-ask of a liquid and illiquid underlying was displayed. A wider bid/ask makes it harder to really tell what fair value is and the theoretical mid price might not be representative of the true market place. Tom added, “The tighter the markets the more accurate the theoretical value (mid-price) is. Remember over the long run you will not be successful trading illiquid underlyings. Over 99% of our biggest gains on a given year are in the most liquid underlyings. We live in a liquid world.”
Multiple-leg strategies may be more difficult to fill. The reason is not because of the complexity of the order. It’s because the trader on the other side of the order has higher transaction costs and will account for them when making a market. An Iron Condor may be more difficult to fill than a Strangle. A graphic showed how to work an order at the mid price. Another graphic showed that by moving your order a penny up or down can help get filled, if you are having trouble getting filled. Patience is important. The market on the underlying is moving so patience can be rewarding. Each situation is different and if the spread is not too wide then lifting the offer or hitting the bid may be appropriate.
For more information on Getting Filled see:
Market Measures from September 24,2016: "Liquidity Awareness"
Best Practices from January 25, 2016: "How to Get Filled at a Good Price"
Watch this segment of Best Practices with Tom Sosnoff and Tony Battista for the important takeaways and a better understanding of how to get a good fill.
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