Urgency when Placing Orders

I recognize that every Member does not get to see each of the questions and answers.
Thus, I turn some comments into separate blog posts. This one is important enough to do that.

It is a continuation of a recent post.

Mark, so when you say that you are looking to roll down and you have the order in that you doubt will get filled you are not really needing to make the trade? Or you are just looking to see if the market makers will take the trade?

Sometimes when I need to adjust the position I get worried that I will not get filled and I start modifying the price and sometimes end up accepting a bad fill just because I am worried about [the market] moving.

So in the above example I am seeing that you put the that original order in and later changed it. So my question is there how long you leave that order in before you decide that you are not going to get filled and switch it. Is that minutes or hours?


1) I did not expect the market makers to take the trade at my price (or near my price). But I entered the order anyway. After a short period of time, I removed that order and replaced it with another. I don’t like the final trade anywhere near as well as I liked the preferred trade. The difference is not big and either trade works.

You will find that when IV is very high (even if it moves far higher) there are many good adjustment choices available. That’s good. But what would be even better would be if we were not in trouble with an iron condor position.

2) The truth is that when you are WORRIED, it is sometimes (NOT ALWAYS) important to make the trade right away, before you lose more money on your (currently) risky position. That is a fact of life. You may have to give up some cash to make the trade. However, if you have the time to look at different ideas, if the urgency is small – such as when you would lose another $100 if the underlying moved 0.5% points – then you MAY have a little bit of time to look for a better trade. If urgency is greater, if the immediate risk of loss is larger, then making the adjustment takes priority. In that situation, time becomes more important.

3) Be aware that waiting can be advantageous . Not because the market may suddenly go your way, but because some adjustments can be done at a better price when certain things are happening. This trade represents one such example.

Here, I am selling more spreads than I am buying. Although near delta neutral, it is short some vega. As the market falls, IV continues to rise (it jumped significantly in a short period of time on the day we made this trade). Thus, the falling market – which is worse for your overall position, and in which you lose more money, makes it easier to get a better fill on an order such as this. In other words – and this is counterintuitive – as the market moves against you, there is no true urgency to make the adjustment (yes, you are losing money as you wait – but you will continue to lose some money after the adjustment is made) because the trade you want to make NOW gets more likely to fill as the market declines (due to its negative vega and an increasing IV).

You must be certain this is still the trade you want. You must be certain that you are not creating a position with too much risk. But if that was taken into consideration earlier, and if the number of extra spreads being sold is small, and if this trade still fits your needs, there is no need to panic to get filled. Sure you can give up another nickel or two, but it may not be necessary.

Does that make sense?

And please understand that this discussion does not apply to a more standard adjustment or roll. When making a trade that cuts delta, waiting would hurt. You would not be able to get a fill because the cost of correcting delta increases as the market goes against you. This specific type of roll down is different from a ‘standard roll down’ in which you sell as many spreads as you buy.

I must be certain this is clear. I do not want to see anyone mis-understanding as to why this specific type of trade is different.

4) My general stance is that I leave the order for minutes, not hours – when I need to reduce risk. This specific trade was less urgent for the reasons described above.

When it’s urgent, when delta and gamma are out of line, then I adjust the price of my pending trade as needed. According to my trading philosophy, if I am making a 5-lot adjustment, another 20 cents, or $100 is not worth worrying about. If I am in trouble, I need the trade far more than I need $100. Sure, we cannot afford to toss $20, $50 and $100 bills into the trash. However, there are times when urgency requires paying extra to get back into a comfort zone. I raise the bid another 5 or 10 cents every 5 seconds. I don’t wait minutes when I NEED the trade now.

2 Responses to “Urgency when Placing Orders”

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