Having trouble getting an order fill?
Three Common Scenarios
We’ve all been there. You put in an order and you’re not getting filled! You modify the price once, twice, thrice, and still no fill! Are you doing something wrong or has the market gone mad?! We’ve compiled some information that might shed some light on why you might be having trouble opening or closing a trade:
Remember, when it comes to getting filled, liquidity is KING! One of the most important elements of options trading, liquidity trumps all. Most issues with order fills are the result of liquidity problems. There’s nothing like being in a winning trade you can’t get out of. Losing trades are even worse. Good liquidity means favorable closing prices. Poor liquidity could hurt you bad. In the world of trading we call this slippage.
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Wide Bid Ask Spreads
First sign of liquidity
Bid-ask spreads are usually the first indicator of liquidity. The wider the bid-ask spread, the more difficult it will be to find a favorable price. Chances are that there is also little to no volume. Simply inputting the mid-price will most likely result in a hanging order, unless there is some considerable price action. As a reference, the most liquid options have a spread as narrow as a penny. Generally speaking, if you are really itching for a fill, then you can consider changing your price closer to the natural, or nat price.
No Bid, aka No Buyers
0.00 bid = No Buyers
It’s hard to sell something when there are no buyers. If no one is bidding for what you are selling, you won’t get it off your hands. A simple way to see whether or not your option has buyers is to look at the bid price. You typically encounter this issue with far out-of-the-money options, especially those nearing expiration, that you want to close out. The 0.00 bid issue has the potential to affect almost every options strategy, especially spreads (verticals and iron condors). That means the long leg of any spread position may not fill as a whole since there are no buyers.
Entering the order at Mid-Price
Not a guaranteed price
Mid-price is a theoretical price for price discovery. Just imagine you are selling a car for $20,000 and someone bids $15,000. Chances are you are going to say no, but will you sell it at the mid-price at $17,500? Maybe? Maybe not? The same logic applies to trading. Generally, wide the bid-ask spreads are less likely to fill at the mid-price. If you are curious about the mid-price calculation, then here is the formula:
Mid Price = [(Ask-Bid) / 2] + Bid