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How to Place Options Orders
Video Transcript
In this video we want to go through and show you how to place Options orders. You'll notice that we're on the Options Tab, within the Control Panel. The first thing you see is the Mini-Accounting window. Now, I'm not going to go through in detail, the Mini-Accounting window in this video, because that's been covered in other videos. I do want to drop down here and show you some of the features of the Options Control Panel. The first thing you'll notice is the quantity of the number of Options we want to trade. We can use the spinners to increase or decrease that to the number we want. Or we have these quick buttons that you can use to just quickly identify the quantity of Options you would like to trade. These are customizable, by right clicking on the buttons and changing the quantity here. We can also come in and say we would like to display in our table down below, either just the puts, or just the calls, or we can have them interlaced, by having both selected here.
You'll also notice that these are the buttons we use to place the orders of the Options. Before we choose the Options that we want to place, we need to choose which time frame. You'll notice that we have the ability of showing multiple time-frame options on the same chart, multiple expiration dates. For example: this is the table of Options that are going to expire in one day. If we have the drop-down here, this is the options that are going to expire within eight days. Lets say we want to place an order for an Option that's going to expire in eight days. Say we want to buy a call option. Very simply, we have two choices, we can right click on the Call Option button. You'll notice that we have the ability to place a Place the Order to Liquidate or Buy at the Bid/Ask. Which is the fastest, it's going to get you in at the Bid or the Ask. We have the ability to place or liquidate the Option at the Bid/Ask midpoint. Now, you will get a better price on this one, but it may not fill as quickly. For the default we place this at the Bid/Ask or the fastest fill. Let's go ahead and place an Options order, we're going to buy a call simply by left clicking on the button, sliding it to an Options placement. You'll notice that it jumps between the different strike prices. As it jumps between the different strike prices, it displays on the screen all the pertinent information that you're going to need to make your trading decision. You can see the theoretical value, how much you're going to pay for the Option, what the Spread is. You're going to see the expiration. You're also going to notice that the purple expiration line appears on the screen as well. You see the open volume and the open interest, and the Bid and the Ask. Once you've determined that you've found location or a strike price that you're happy with, you just release the mouse button- it pops up the options order confirmation dialogue box. Gives you all the pertinent information once again, to confirm your quantity, what type of order that you would like to have. Again, it gives you the statistical value of the different features, or the different values of the option.
If you are a little bit confused, and you would like a little bit more help, you can simply click Help. It pulls up an additional information window, that allows you to come through and get some of the information about what's going on within the Option. Then we can reduce that back to the minimum size. Then we're going to go ahead and hit Okay, and conform our options purchase.
We now have our option, which has been placed into the market, this is our option. We can now come down to liquidate the option, very simply we can right click on the triangle here, notice that it is lined up with the date in which we made the purchase. We can come in here and say liquidate the option. We can look at the properties of the option, and of course, this is coming in here and allowing us to decide what we would like to have displayed on the Options line. Then to liquidate the option we can come in and say liquidate the option. But before we do that I want to come back to the options tab and I want to say that what we want to do is we want to Sell the Call Option. So we're going to put that on liquidate, and now when we liquidate, we're going to say liquidate the option. Say okay, and you'll notice what happens is we end up with a pending order. Because we're not receiving the price that we asked for immediately, we're asking for a better price that is being offered at the bid or at the ask, we're going to get a pending order. That's why this order is changed to yellow.
Now, lets say we want to come in here and we want to delete the pending order. We just simply right click on the triangle, say, Delete Order, and it deletes the pending order. Now, if we want to liquidate the Option, we can simply come in here, right click, place it, place our default back to fastest fill. Now when we come in and we right click, and we say liquidate the option, you'll notice that it will liquidate immediately.
The next feature I want to show you is the Interest Rate button. The Interest Rate button is used to help us identify what the theoretical value of an option is. The theoretical value being that of course, what we feel like, almost what we feel like is the Kelly Blue Book of Options. So we have a mathematical calculation that tells you what the Option should be valued at. Just as you would in a Kelly Blue Book, for a vehicle or a car. You say the car is supposed to be worth $5,000, but the owner is asking $6,000 or is asking $3,000. If the owner is asking for $6,000 for something that's valued at $5,000, they're asking for a premium. They want more money for it than it's actually worth, or what it's calculated to be worth. If they're asking $3,000 for something that's valued at $5,000, they're giving you a discount. They're selling it to you for less than what it's calculated to be worth.
Well, the theoretical value of an option, is basically the Kelly Blue Book of Options. It tells you what the Options theoretical value is, and one of those formulas is based on interest rate. So, we have to put in daily interest rate. Based on the Option in which you're using, if you're looking at an option that doesn't expire for 71 days, you would want to use the interest rate that is projected out. That's as close to that time frame as possible. We give you an interest rate table by simply clicking on this hyperlink. This will open up a web page that gives you the interest rate. You could take the information that you need, for this certain time frame that you're looking for. Then enter your information here, and that's going to give you a more theoretical value for your Option.
The last thing I want to show you is, you can slide this window, quite wide. This is going to give you more information based on each individual strike price of the Option. You'll notice we come across here and we show you a number of different statistical values for each individual Option. You can see the Premium, the Theoretical Value, the Volume, the Open Interest, the Bid, the Ask, the Last, the Change. We also go into the Greeks, out here. We have the Delta, Gamma, Theta, Vega, and Rhoe. But this is a very important several columns here, which gives us the probabilities of being in the money, out of the money, or the probabilities of touched. We'll go into these in greater detail in other videos.
One last thing I want to show you about this table is we have the ability of placing orders right off the table itself. We can simply come in here and say, I want to buy the 1920 Call. All I have to do is right click on the 1920 Call, and I get the Buy or Sell feature. We can go ahead and hit Buy, and it pulls up the same Options confirmation order dialogue box. We can go ahead and hit okay, if we would like to place the order or hit cancel to cancel out.
This has just been a quick overview, or review of the Options Control Panel.