Hi guys, How do you decide the limit order price for an opts order ? do you simply look at the bid-ask and place it in middle or do you use some calculations ? If so, what type of calculations do you use ?
If you are buying immediately then start with the mid. If it's very liquid, lots of interest, you can go lower. If not liquid you'll either have to wait to be filled or go closer to ask. If setting a limit price other than that you can use technical analysis on the chart of the option.
Mostly a guess. If you place your bid mid-way, you may get filled sometimes..... but in reality, most of the time you get filled when your limit bid has become the market's ask. When it comes to fills, better to trade issues with tighter spread.
It depends on what you are trying to do. Assuming you are not in a hurry to get in or out, you try to get in or out with a limit order in between the bid and ask. Now, if you are trying to get out pronto, you place a limit order with a price equal to the bid price assuming you are selling an option. Now, if you are trying to get into a position and the bid and ask is narrow, you could place a limit order, now matching the ask price. Remember, in all this, the market maker has a big say in what price you actually are able to get.