Hi Everyone,
I want to share with you the tips to use when you don’t get your credit spread order filled.
There are five main reasons your order didn’t get filled.
- Wrong kind of order.
- Wrong type of order.
- Underlying stock price moved.
- Asking too much net credit.
- Order too large.
I will teach you how to fix every problem getting filled.
Before I get into the finer point of getting filled. I want to tell you about the options quotes.
As you already know from the training, we want to stay out of the money on our credit spreads. And when you look at the quotes on the options, you won’t always see how you could sell a Put and buy a lower strike price Put and make a net credit.
This is where you have to look closely at the individual options quotes. Here’s a real example…
When AMZN is bullish, I like to look at the out-of-the-money Puts.
To the untrained eye, it can be confusing.
Here’s why…
If you look at the stock and options strike prices and the quotes on those strike prices, you will see quotes that look like this from my Schwab account. 
I want to sell the 2075 strike price Put and buy the 2070 Put with a net credit limit of .30
When you look at a quote of each strike price, the “bid” is the price the sellers get and the “ask” is the price buyers pay.
The quote on the 2075 strike price Put $3.30 – $3.70
The quote on the 2070 strike price Put is $3.10 – $3.40
How could you sell the 2075 Put and buy the 2070 and have a net credit of .30?
If you look at the “natural” spread, you couldn’t. The reason why is because you’d be selling the 2075 strike price Put for $3.30 and buying the 2075 strike priced Put for $3.70 and that would create a debit… not a credit.
But things aren’t always as they seem.
Here’s why…
The options specialist at the exchange quotes the prices on each option with a wide spread.
However, he can and will execute trades that are placed to buy and sell at prices between the bid and ask.
So, in essence, when we place both trades at the same time with a limit, our limit on the net credit itself such as .30, there is plenty of room between the bid and ask on each option’s quote to get .30 net credit buying one and selling the other.
What you are doing here is “creating” your own spread.
When you enter the net credit on a limit, what will most likely happen is that you would sell the 2075 Put buy the 2070 Put at .at prices in between the bid and ask of each option.
This is pretty much doable because of the spreads between both options bid and ask.
You can even see this happen by looking at the price under the “LAST” column. That is the last price the option traded at and it is very often at a price between the quoted bid and ask for that option.
Remember, it does not matter what the individual Puts were bought and sold at, the only thing that matters is the net credit.
OK, now let’s look at how to fix any problem you have getting filled on your order.
First it’s important to understand why the order did not get filled.
1. Wrong kind of order. The order was entered as a debit spread and not a credit spread.
Fix this by re-entering the order correctly as a credit spread.
2. Wrong type of order. The order was entered using Calls when it should have been Puts.
Fix this by re-entering the order correctly using Puts.
3. The stock moved up or down since we published the alert.
If the stock went up $50 between the time we sent the alert and when you got it, the only way to fix this is to raise the strike prices on your credit spread. It’s not like the only good credit spread is the one we alert you to. There are many good credit spreads on the same stock. Don’t be afraid to raise your strike prices if you have to do that to get filled.
4. The spread you wanted was too much.
To fix this, ask for less net credit or change/move your strike prices closer to the price of the underlying stock.
5. Order too large.
If you enter an order to buy and sell 50 – 100 contracts, the options specialist on the CBOE floor will likely fill part of it then change the quote.
With large orders, you never want to enter it all at once because the market for that spread may not be big enough to fill your order. Try entering it in lots of 10 contracts. Also use strike prices slightly above or below your original order.
The underlying issue with an order that is too large is the amount of money being used. When you are try to use $250,000 – $500,000 every week, you will have to use more than one stock.
Trade Well,
Jack