Get Option Order Filled Instantly!
Sometimes option trading fails to fill the order and issues arise due to liquidity. make some changes in the price and see order fills.
It is frustrating to plan a trade, pick your option contract, and fail to get filled. Not getting filled in a trade is a common problem. The bigger problem is the opportunities missed when a trader cannot get filled. A trader's ability to get filled quickly can directly affect how much money is made in a trade. Time is money! The good news is there are many factors that can affect a trader's ability to get filled quickly that will be discussed in this blog.
Factors that Affect Getting Filled
Throughout this article, we will discuss all the reasons a trader may not get filled. These variables are important to consider before entering any trades. Disregarding these factors listed can result in massive losses as well as missed opportunities.
Order type has a significant factor in filling the order. As you can see in the picture below, the most common order types available on Robinhood are market order, limit order, stop-loss order, stop-limit order, trailing stop order, and recurring investment. A stop-loss order is a form of a market order which means the trade will likely get filled instantly.
The limit orders with limit prices have less chance to be filled. If the trade price of the contract does not match the buyer or seller's trade price, it will not fill. On the other hand, market orders have high chances of getting filled, but they may not be at an ideal place. The broker takes into consideration the type of order while executing in markets.
Stop order is an excellent option if you want to ensure that your order will be filled. A sell stop order transforms into a market order when the best price is reached. However, there are special risks the order will be stuck with a higher or better price than your expectations.
By making the combined order of stop and limit order, you will get the best. The limit order will set a limit price to save you from paying more than your expectations while setting the stop ensures that your order gets through. A combination of stop price and a limit order is an effective options trade for securing a position in a high-liquidity trading session of the underlying stock.
Lower volume can stop orders from being registered or filled as every order needs a buyer to match with a seller. This is a major requirement for limit orders since traditionally limit orders already have a low chance of getting filled. When there is lower volume limit orders can be almost impossible to execute if the trader doesn't check. Open interest is the number of contracts that will need to be closed in the future. Higher open interest doesn't mean the trader will easily get filled but this number can provide future liquidity.
Below is an example of the options contracts detail on Robinhood, by clicking the option of our choice the volume and open interest can be seen. The option contract below has a volume of 40,982 and an open interest of 7,355. These numbers indicate plenty of buying and selling which means a higher chance of getting filled with a limit order.
Below is an example of an options contract with lower liquidity as seen by the volume of 0 and open interest of 1,859. These numbers indicate zero buying and selling which means a lower chance of getting filled with a limit order. The only reason for future volume is if the buyers or sellers thought they could make easy money from you. Typically options with no volume are not attractive and will cost a premium to get anyone interested.
Avoid Round number pricing.
Round numbers like $200, $150, and $25, typically ending in zero or five, is where most other traders are placing their orders. The way order books work, is that the first traders who placed their orders get filled first. So if you placed an order for a stock at $10, and were the 10,000 person to put their order there, the only way you will get filled is if all the other 10,000 orders get filled first. The larger number of orders the harder it will be to get filled quickly. If you want to get your order filled before all the other traders you can use numbers like $24, $99, and $199. Placing orders at uncommon numbers will allow for less competition for the trader to get filled.
As you can see in the picture below from Coinbase pro. This visual order depth shows where the bulk of the orders is, placing the order in front of these peaks can give traders a higher chance of getting filled.
Why is my order not filling?
Liquidity is the primary factor of options trading that plays a crucial role in order filling. Mostly, orders fail to be placed due to liquidity problems. Good liquidity means a good expected or beneficial closing highest price, whereas bad liquidity work hurts you. There is nothing more disappointing than failing a trade.
Here are four different scenarios that can explain why option order causes trouble.
Large Bid-Ask Spread
It is the first sign of liquidity. The broader the bid-ask spread, the more difficult it will be to end up with an expected price. Bid ask spread is the difference between buyer and seller's desired stock price. There is a possibility that it has little to no liquidity between the bid ask price. Therefore, just inputting the mid-price will result in a hanging order unless any significant stock price action occurs.
As you can see in the picture below the bid is $1.78 and the ask is $1.85. The bid-ask spread is this example is relatively tight but let's explain the nuances of it.
Buyers are sitting at $1.78 - if a trader places their buy order here the order will be less likely to get filled as they will have to get in line behind the other buyers. The closer and closer a trader moves to the ask, the higher chance of getting filled.
Sellers are sitting at $1.85 - if a trader places their order here this gives them the highest chance of getting filled. One thing to note is the number of contracts the trader needs to fill. If the trader enters 100 contracts at $1.85 and there are only 10 contracts for that price on the order books, this will result in a partial fill. The rest of the contracts may never get filled because of the lack of volume.
The spread is $1.79-$1.84 - if a trader places any orders at these prices it will be very hard to get filled. The trader will have a better chance of getting filled if there is already a high volume on the option contract. If there is low to no volume, going inside the spread can cause hanging orders.
When there is no buyer, it is challenging to sell something. When there is no buyer, how will you sell your product? The direct way to check if someone is bidding is by considering the bid price. You can also face money options with zero buyer scenarios, specifically for those stocks who are about to expire.
Zero bid issues can heavily impact almost every option strategy. It implies that the long leg of the spread will not fill due to no buyer. However, if you are standing where you want in the trading, you can at least cover the short leg. After covering it, you can enter the option to close the long leg at $0.01 credit. It means, in this scenario, the leg will close if there is a bid. Otherwise, the long leg will expire as paltry.
Entering the Order fill at Mid-Price or market price
It is an in-between scenario where no result is guaranteed. Basically, mid-price is the theoretical price used for discovery. It works similarly to the mid-price while making purchases in the local market. For example, you sell a bike for $10000, and someone bids for $5000. It is possible that you will say no to sell, but will you agree on a mid-price like $7000?
Trading follows the same logic. Usually, wide bid spreads are less likely to fill at mid-price or different price.
If you have a spread or multi-leg options order entered at the Nat selling price that has failed to get a buyer or filled. It is possible that you might be feeling crazy. It becomes problematic when you have the spread because the entire order must be filled at one exchange.
In the field of option quotes, the best quotes must display. It means the highest bid price as well as the lowest ask price would be listed as the quote for all exchanges. This system is commonly known as the national best bid and offer.
If the option or stock has decent liquidity and volume, the order will get filled at the natural selling or purchasing price. Otherwise, you cannot see option fill. Keep in mind that there is always the possibility of an unsuccessful deal. The natural price is based upon the NBBO.
Rules for order fill of options trading
Patience: keep in mind that option price can cause risk of market volatility. If you are willing to settle the deal or fill the order at mid-price, you need to wait patiently. The market can be hysteric to overlook the order.
Planning: once you have decided trading strategy, determine the way you will settle the trade. If you think your strategy is typical and the market order will not fill, adjust the price and quantity.
Determination: just because you were unsuccessful in getting the market order filled does not imply that there is no more opportunity to trade that contract. Ultimately, you will see the trade order fills or partial fill of market order.
Every options contract has its options trading liquidity. Therefore, there is a risk that your option might not be filled because those limits or market orders have no liquidity. However, there is a solution to every problem. If your trade order is not filling, you can follow above mentioned techniques and scenarios. It will help you get the limit and markets order filled and eliminate the risk of no bid or trade.
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