Entering an Order to Buy or Sell Options Investor Series, Part II
In part I of our options investor series, we looked at a table (from the CBOE) displaying option quotes and other useful data. This time we’ll see how you use that data to enter an order to make an option trade.
To keep this simple, we’ll consider buying or selling a single option. Because using the broker’s trading platform involves ‘live’ data a specific stock and its options must be used for an example. Please note: This is merely an example and NOT a recommendation. Furthermore the data shown is a screenshot and thus is not a live quote.
Let’s look at some puts and calls for AAPL (Apple Computer). My broker is Interactive Brokers and this is their platform. Yours will be different, but it should be similar enough to allow you to benefit from this discussion. If you have a problem working with their platform, be certain to ask your broker.
With AAPL trading at $120.73 per share (See Last Price), here are the option quotes for five out of the money (OTM) puts and 4 calls (one at the money (ATM), and three OTM).
Let’s assume you decide to buy a few May 115 puts because you believe this stock is heading lower. Whether this is an intelligent trade under the circumstances is beyond the scope of this post. To enter the order, simply click on the price of the option in the ‘ask’ column. This does NOT mean you are willing to pay that price, but it allows you to enter an order.
You do that, and while you were making your decision, the markets changed a bit (AAPL declined 9 cents in the interim). You decide to bid for five of those puts, and want to enter a day order to pay $4.20 or less. The image below shows the order, with all data filled in. It is ready to be transmitted to the exchange by clicking on the ‘transmit’ button near the top of the page (not shown).
Alternatively, if you are bullish on Apple and want to take advantage of the fact that the stock is lower by $2.78 on the day (under ‘Change’), you may elect to buy the May 130 calls. You click the ‘Ask’ price and enter the quantity and price limit in the appropriate space.
In this example, you are willing to pay the asking price. Assuming you do not delay in hitting the transmit button (not shown), your buy order for 6 lots (contracts) of the call should be filled immediately.
This trading screen shows only of few of the many options listed for trading. You can set up your screen to show the market for any option that interests you.
Mark D Wolfinger is a 20 year CBOE options veteran and the author of the book, The Rookie’s Guide to Options (Read our full review). Visit his blog, Options For Rookies and follow him on Twitter!
Other Recent Option posts:
- Entering an Order to Buy or Sell Options Investor Series, Part I
- How to Make the Best Options Trades, 6 Keys to Success
- 7 Reasons Investors Should Trade Options
- 9 Option Terms Every Investor Should Know
- The Key Differences Between Options and Stocks
