Created: Feb 12, 2022

$TWTR 3/2

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Filling Options Orders

This thread is intended to be a guide to placing and executing open/close orders on options contracts.

When trading options, you can know every trend and candlestick pattern, but still fail if you're not familiar with getting orders filled properly.Promote
Everything contained in this thread will be strategies based on personal trial and error. I've had many errors. Ideally these tips can help you avoid them.

Just like any of my edu content, I would encourage you to take the things stated here, and build your own set of rules.
1. Bid/Ask Spreads

We're all familiar with starting a position red. But it doesn't have to be that way.

The options chain will reflect the "mid-price" between the bid and ask as the current price. However, it is often hard to execute an order at this price.
You will find that some tickers will fill options orders at the mid-price, while others will only fill if you slap the ask. It puts you in a tough situation.

But this is a component of the risk/reward in options trades that people often overlook.
First thing I notice is the wild difference in bid/ask spread.

$NIO is 1.18 bid / 1.23 ask
$XPEV is 1.78 bid / 1.96 ask

If you slapped the ask, you're immediately "down":
$NIO: -2%
$XPEV: -4.6%

You may get a slightly better fill, but this is worst case.
Why are these prices so different?

Take a look at the volume and OI. There's a reason that $SPY contracts trade in 1 cent increments, because of their liquidity.

$NIO is far more liquid than $XPEV, while translates to wider options spreads.
Additionally, $XPEV has a higher Implied Volatility, which will increase the prices of options across the board, calls or puts.


What can we do to mitigate this?

Pick stocks that have small price spreads, be selective, and do not settle for something that immediately sets you up in a poor position.

Look for volume. Where the volume is, you should be, especially with options.
I use @unusual_whales to help with this process. I utilize the "Hot Chains and Tickers" menu to show tickers the most commonly traded options. 

This is usually my main focus. There's a reason that I check the volume regardless of the direction the play could go.
Calls are naturally more liquid than puts. Often, bears will sell calls. Bulls buy calls. This often leads to lower liquidity in puts.

I use the Intraday Analyst page on Unusual Whales to just show me where the volume is. I usually don't care if it's bullish or bearish.

Volume means liquidity which means smaller bid/ask spreads. Find stocks with liquid options chains and go from there.

Additionally, psych numbers such as $5 increments will usually have more volume even if it is more OTM. For example, $TTD 115c below:
2. Analyzing Different Situations

In the example above you'll notice that there are different quantities on the bid/ask. This can be a great indicator for when to buy and when to wait. In the $NIO example:

1.18 x 1 bid / 1.23 x 31 ask

There is more supply than demand.
Why would I buy the ask now when I know there are tons of contracts waiting to be sold?

In this case I would notice the supply of contracts and either place a bid at 1.18, or take a slightly higher bid (1.19-1.20) if I wanted a quicker fill.
Suppose someone market sells a number of contracts, the 1.18 bid would be eliminated and the bid would likely drop to around 1.15. 1.18 would surely be close to the mid-price after a couple ticks down.

When buying a pullback, limit buys below the mid-price often get filled.
Take a look at $XPEV now. 

1.78 x 69 bid / 1.97 x 27 ask

A good deal of contracts on both the bid & ask. The mid-price would be 1.88. I notice that there is more demand than supply given the amount on the bid. I would be comfortable bidding slightly above the mid-price here.
Knowing that there is supply to back me up, I would be fine with contracts at 1.90 and a mid-price of 1.88. The chances of getting a fill here is low if the stock moves upwards.

However, a could downward ticks will likely ensure a fill on the mid-price.
There is no need to rush this process. If you miss a fill, just let it go. It's a lot better than buying at 1.96, getting knifed, and selling into a 1.50 bid 2 minutes later. 

This situation is still far from perfect. As these spreads can tighten.
Often times I will wait for the demand to build up with a limited a very limited supply on the ask.

Suppose $XPEV starts to break a key level.

Bid: 1.85 x 45
Ask: 1.96 x 3

If I was waiting for a better situation, here is my opportunity.
I can place a bid slightly below the ask, but that is unlikely to be filled. In this case I would lean toward an entry at 1.96, knowing that continued upside would greatly push the value of this contract given the current demand.
Ex 3 & 4 $CHWY call/put (each 2 strikes OTM)

These contracts are almost identical in volume/OI/IV/spread/price.

You can see that there is supply on the calls and demand on the puts. Without even looking at the chart I can tell you the close on $CHWY was probably bearish.
Suppose this is intraday. How would I play it?

I would be very hesitant to buy calls given the supply, I would likely wait for the bid to build up before bidding slightly above the mid-price.

If I believe a downside move is coming, I will bid for puts, knowing there is demand.
If these spreads tighten (which they often do), I will use this same analysis process to determine my entry.

Ideally I would see this on the 68p:

1.83 x 85 bid
1.90 x 10 ask

Great example of a comfortable situation with demand to support you.
3. Stop Losses

I use market stops almost exclusively. I use Webull for options trading. In my experience, stop losses are triggered base on the input "stop price" becoming the mid-price. This does NOT mean that your stop price will be the bid.
This is where limit stops can be dangerous. You are not guaranteed to be filled. If there is a certain price I want to make sure I get, I will set a market stop slightly above that price so that my desired sell price will be the bid. 

Entries and exits are crucial. Good luck!

How to Play Trigger Watchlists

How to play trigger watchlists

1. How/When to enter:

This is NOT an exact science, there is no way to avoid fakeouts. These are KEY levels, and for that reason, provide strong moves. However, they can be hard to break due to their significance. You must manage risk.PromoteThere are two strategies I follow. 
a) Conservative: Wait for a 5 minute candle to close through the trigger level. Ex: if an $AMD put trigger is under 100 and 5 minute candle closes at 10:45AM at 99.85, take the position.b) Risky: Playing the first sign of follow through. Ex: $AMD closes 5m candle at 10:45AM at 100.15 - No trigger. At 10:47AM, $AMD fails 100 support and closes 10:47 1m candle at 99.80. I would likely take a position off of key support failure.2. Fakeouts/Stop losses

Taking losses is inevitable in trading. Our job is to minimize them. My rule here is -10% hard stop loss because you can always re-add the position.

Suppose you take a position from Ex a) $AMD immediately reverses and closes 10:50 5m candle at 110.15…Your position is red, likely down ~10%. Cut the loser and reassess. Your reason for playing was the 100 breakdown, it is now INVALID. As soon as your thesis becomes invalid, cut, take a deep breath, reassess, watch.Suppose $AMD again breaks the 100 support and closes 11:00 5m candle at 99.90. The 100 support has become weaker. Take a position. The probability of a breakout/breakdown becomes higher the more times the level is broken.3. Exit

If your position is green, set a breakeven stop. No need for a green position to turn red. Identify the next sup/res on a 5m chart and use that as a short-term PT. Upon hitting that next level or a desired % gain, scale some. Then move the remaining stop loss higher.Scaling allows you to secure gains while enabling you to trade STRESS-FREE. Many use 1/3s or 1/2s. I recommend holding runners (very small % of initial position). This prevents FOMO, and allows you to make huge gains from a small, stress-free position.Ex: After $SQ failed its trigger level for good on Fri. it faded all the way into close. Out of caution, one could secure gains for 95% of position and leave 5%. This 5% has minuscule risk, went for 700% gains. This = more than 30% gain on the whole position from only 5%.4. Gap up/down

Should the tickers gap up/down past the designated triggers, wait for retest of the trigger. Ex: $AMD gaps down to 99.50 & within the first 15 mins it retests 99.95-100. Could be a good time to take a put position. Old supports often become resistance & vice versaIf the ticker does not retest a predetermined trigger level, I don’t play it. Just my preference to make a plan and stick to it. No need to improvise when I have other setups to watch.5. Build your own game plan

Many people on twitter give useful watchlists. Take them and create you own style and set of rules. For me, key levels and volume are all I need. I watch VWAP and 9ema for confirmation. Do what works for you. There’s no golden indicator. Good luck!

How to Read My Watchlists

For those who are new:

$CHWY 80c > 77.35 | 74p < 76

Reads: if $CHWY confirms over 77.35, watch 80 strike calls, and if $CHWY confirms under 76, watch 74 strike puts.

Please read this thread before taking any of my plays.

3/2 Watchlist 🔮

$AAPL  167.5c > 164.25 | 160p < 162.15
$TWTR  37c > 35.90 | 34p < 35.10
$RIVN 65c > 63.35 | 60p < 60.80
$BABA 110c > 108.10 | 104p < 105.75
$BAC 43.5c > 42.85 | 41p < 42.05

Patience this month.
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