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BrentinUtahsDixie wrote:
>
> Based on my experience option liquidity is not as crucial an aspect of
> option trading that you would think. I would say that timing and price was
> more important a factor than liquidity. I have traded Orange Juice Options
> and done so successfully. They are very illiquid as you might guess. I had
> an OJ put option that I bought in a down trend when the volatility was very
> low. It got into the money and I decided to put a profit stop in for it. The
> next day OJ dropped like a rock going through my profit stop. Guess what?
> There was no slippage at all when I had something that somebody wanted, they
> snapped up my option like a killer whale eating a sea otter.
Just to be clear, I think you mean you put in a limit exit order? Or do
you really mean a stop exit? In my first phase of trading options, I
tried using stop orders and found them quite ineffective; a lot of times
the stop wasnt' even triggerred bec. trading was so infrequent in the
option. That's different from having a limit order where it'll be
offerred and not have to wait for somebody else's trade in order for the
order to be active.
>
> Because of the auction like action of option trade if you are offering a
> price that someone likes you have no problem selling. Buying however is when
> YOU want to like the price, and it takes a little effort to get a good
> price. As I've said before I expect to take a small loss most of the time
> when I first buy an option it's just natural. A word of warning buying early
> in the session is NOT usually a good idea unless you are day trading
> options.
> {snip}>
>
> I'm sure that someone is going to say that liquidity is everything and I
> agree it is important and helpful, any option that has 250 volume in day
> trade I would think should be fine. It's when it's less then about 30 to 50
> that you are going to want to be more careful.
I've had pretty good luck getting in or out of options, even low-volume
ones, by basing the price on yesterday's close and bidding/oferring a
couple tics extra/less than the value of the option based on those
numbers. (For currencies, etc. I use Globex's close.) I may exit
intraday based on a price alert, triggerred by an adverse move. Again I
use the calculated value (using yesterday's implied volatility and the
current price) minus a couple tics. 75% of the time I get a tick or two
better than my offer. Interestingly, orders placed at the beginning of
the day seem to be more apt to be filled at the limit rather than
better. Usually once I place an order I leave it alone.
There certainly have been times (20%?) when i've havent' gotten a fill.
There are times when I might bid 8 and an offer of 9 shows up (even tho
my bid is a bit high). Maybe i would do better bidding 6 and then
changing it, but i prefer not to follow the mkts much during the day.
Brent is correct that if your price is right you almost always will get
a fill except in very inactive mkts. Platinum would be an example of a
mkt for which it's hard to get in and out of options.
Conrad Bowers
[no options or order specialist, i've just bought 20-30 options over the
last 3 yrs.]
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