Secret 77TEST THE WATERS— HOW TO GET THE BEST PRICE
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There is one easy technique that you can follow to get better
trade executions or better option prices when you buy or sell options.
When you are determined to buy or sell an option, test the
water first.
For example. you want to buy an option that is quoted 1 at
1.3. To buy that option right now, you will need to pay 1.3, the
asked price. But take a minute or two to test the water. Enter a
limit price of 1.15 and see if the market maker will bite. You will
be surprised how many times you will get your price (i.e. 1.15)
instead of the asked price of 1.3.
If your order at 1.15 is not filled after a few minutes, you can
modify your order and pay the asked price by entering a market
order or limit order at the asked price. Of course, the tactic probably
will only work if you are trading online.
A postscript is necessary here. When you enter an order with
your broker, his floor broker is suppose to work to get you the
best price. However, honesty is not the best virtue on the floor,
and floor brokers can tip off the market makers to what order
they hold in their hands. Consequently, it is best to maintain
control of your order and use the internet to negotiate your
trade.
There is one easy technique that you can follow to get better
trade executions or better option prices when you buy or sell options.
When you are determined to buy or sell an option, test the
water first.
For example. you want to buy an option that is quoted 1 at
1.3. To buy that option right now, you will need to pay 1.3, the
asked price. But take a minute or two to test the water. Enter a
limit price of 1.15 and see if the market maker will bite. You will
be surprised how many times you will get your price (i.e. 1.15)
instead of the asked price of 1.3.
If your order at 1.15 is not filled after a few minutes, you can
modify your order and pay the asked price by entering a market
order or limit order at the asked price. Of course, the tactic probably
will only work if you are trading online.
A postscript is necessary here. When you enter an order with
your broker, his floor broker is suppose to work to get you the
best price. However, honesty is not the best virtue on the floor,
and floor brokers can tip off the market makers to what order
they hold in their hands. Consequently, it is best to maintain
control of your order and use the internet to negotiate your
trade.