OptioNewton

Entry Orders

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Market -

Limit -

Stop loss (to buy) -

Trailing stop loss (to buy) -

Multileg -

Good Til Canceled -

Conditional Orders

Index -

One Triggers The Other (OTO) -

Exiting Options Positions

Long Positions

An option position can be closed at any time before opex. However, many strategies may intend to exit on opex day. If the account holds any long ITM options that expire on opex day, 3 things can happen on that day; 1.) they can be sold by the holder, 2.) they can be exercised by the holder, or 3.) if no action is taken, they can expire worthlessly and the holder gets nothing. Because of the latter, it is very important to make sure that if the account holds any ITM options that may expire that one of the former actions be taken by or on opex day.

Short Positions

Similarly, to a writer who has short positions in ITM options 3 things can happen 1.) the writer can buy back the written options to close out the positions, 2.) the writer can do nothing and allow them to be exercised by the purchaser in which case the writer will need to either sell stock at the call strike price in exchange for the premium on any written ITM calls or forfeit cash to buy stock at the put strike price in exchange for the premium on any written ITM puts or both , or 3.) the options can expire and the writer keeps any credit premiums. However, most ITM options will be exercised and are unlikely to expire worthlessly. If the writer doesn't want to take possession of the stock he will need to buy back any written ITM options before close of buisness on opex day.

One of the things to be careful of is when earnings announcements are scheduled a few days before opex. There can be large swings in the stock price as a result of earnings results. And therefore profits and losses on options can swing wildly from the day before announcement to the day of or after announcement. Some strategies are established specifically to take advantage of these swings. It should be understood in these situations there is only a day or two to act upon the positions accordingly. Also, US options can be exercised anytime. A holder of an ITM option may choose to exercise and exit before earnings are announced.

Exit Orders

Stop Loss (to sell) - stop losses are an order that becomes a market order once the fixed stop limit or fixed percentage is hit. These are used to protect a long position from a drop in price. Stocks and options can also be bought using trailing stop losses. They are only executable during normal trading hours. The short coming is that prices for stocks and options can gap up or down from the previous days closing to the following day's opening.

Trailing Stop Loss (to sell) - is an order that gets executed when the price falls a fixed amount. As long as the price is rising in a long position, the trail amount will follow it. Once the the long stock or option price starts to fall, the trailing stop loss is fixed. These are used to protect a long position from a drop in price. Stocks and options can also be bought using trailing stop losses. They are only executable during normal trading hours. The short coming is that prices for stocks and options can gap up or down from the previous days closing to the following day's opening.

Expiration -