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With the holidays coming up, the last thing you want to do is be chained to a computer, waiting for your next trade opportunity…
That's why today, I want to talk to you about the three types of orders that can allow you to score profit no matter where you are.
Here's what I mean…
Your Top Question – Answered
As you know, I like to go through my inbox and answer some of your most pressing questions…
And the one I found below is a great question – and an extremely important one!
"Hi Tom, I'm in most of your services and am one of the lucky ones to get a lot of trades from you every week. But I work full-time and it's hard for me to sit in front of my computer… is there an easy way to place an order and automatically set your exit at the same time?"
You know by now that timing is everything…
The problem is, most traders feel like they have to sit in front of their computers all day to nail their perfect entries and exits. But I'm sure you've got MUCH better things to do with your time besides staring at stock prices and charts all day – especially as we head into the end of the year and the holiday season.
On top of that, while computerized trading systems can work for some people, this type of trading doesn't necessarily give you the full picture – and it doesn't work for everyone. Fortunately, you can watch your trades and spend your well-deserved time at the beach – without even looking at your computer.
And it all boils down to these three little orders…
Order No. 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 $0.20 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, putting others' lives – and your own – at risk.
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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.
You can also use the limit order when you are trying to close an options trade. Let's say you own that September $35 call at $3.50, and the stock price drove the value of the call option to a bid price of $5 and an ask price of $5.20. You can use a limit order to exit your position and lock in your profits at a specific price or better – just as you would use a limit order to open a position.
Order No. 2: The One-Cancels-Other (OCO) Order
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.