10 Tips to Manage Risk in a Volatile Options Market
Randy Frederick, April 14, 2009
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Tip 2: Take Care of Your Multiples
For multiple-leg orders such as spreads and buy/writes, consider entering an order to trade at a price that is better than the market price (between the bid and ask). Then, if necessary, re-enter your limit order at the market price.
Often, the wider the bid/ask spread, the greater your chance of execution between the bid and ask.
When the spreads are wider, a market maker may be more willing to lower the ask or raise the bid in order to trade with you. When the spread is 5 cents or less, it will be more difficult to trade between the bid and ask.
One more thing: Limit orders between the bid and ask prices may more likely get executed in the last 15 minutes before the market close. Market makers may be more negotiable as they prepare to go home for the day.
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