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Options allow you but do not oblige you to buy or sell shares of stock for an agreed-upon price within a specific time frame (the expiration date). One crucial piece of information to know when trading options is whether they sell immediately after being put up for sale.
Options will usually sell immediately if you try to trade during regular market hours, especially if you set a market order. Some options that have a low trading volume may take longer to fill.
You can avoid the problem of unfulfilled orders by only trading with more popular options.
If you set a limit order when selling an option (which I would always recommend) it may take longer to fill when the price is not where you set the limit order at. However if you set a limit order right between the bid and ask prices you will likely get filled (sell the option) pretty quickly.
In this article I will explain whether and when options sell instantly. You will learn what causes option orders not to fill and whether you should use market or limit orders.
Finally, you will learn some tricks that may make your orders fill faster. To see the most popular books about option trading just click here.
How Long It Usually Takes for Options To Sell
Options trade through a broker on the exchanges and fill the same way as stocks and other securities. This means when you decide to buy or sell an option, you will have to place an order and wait for it to be filled.
The time it takes for the order to fill depends on a few factors:
- The trading volume of that particular option
- The ask-bid spread
- The limit order price you set
- Whether you are trading in regular market hours
If you are trying to sell a popular option during peak market hours, you will usually be able to sell it close to instantly. On the other hand, if the option has a low trading volume, it may take longer.
You can check an option’s trading volume by filling out an order for it on your broker’s website/app. When you have finished filling out all the information, a quote will appear right beneath the company’s stock quote that should show you the volume.
If you look at the option’s chain you should also be able to see open interest which will tell you how popular that specific option is as well.
Your Broker Will Manage Your Orders for You
Once you place the order, it is up to the broker to decide how to execute it and who will fill it. The broker may already have the contracts available and fill the order internally, resulting in an almost instant sale.
Alternatively, the broker may send the order to the trading floor, where humans will bid for it. This may cause a delay in the execution of the order. Another delay can happen when the broker cannot fill the order and has to send it to a third party to fill it.
Sometimes An Option Order Will Not Fill
In some instances, when you place an order to sell an option, it won’t execute at all. This can happen for a variety of reasons, such as:
- The option is out of money on or close to the expiration date, making it worthless, and there is no reason for someone to buy it.
- Options, in general, have a much lower trading volume, even those of popular stocks like AAPL or GOOG. Smaller companies have even lower trading volume, and if it is lower than your order quantity, the order will likely not fill.
Market and Limit Orders
When talking about trading options on the market, a trader can place two types of orders. What order type you decide to use may impact whether and how fast your sell order will go through.
When placing a market order, you are instructing your broker to execute the order at any price. This will result in much quicker execution times for your orders, but it is also quite risky.
You might lose a significant amount of your profit or increase your losses by selling an option with a market order. However, if you are trading options with high liquidity and stable prices, a market order is probably the way to go.
Some trading experts advise people to be careful when placing market orders for options. Buying or selling at any cost is rarely a good idea, especially when the trading volume is high and prices can go up and down in a matter of seconds.
A limit order is an order to buy or sell an option for a specific price or better. The order won’t execute unless the option reaches the limit price. In some instances, this may never happen, which will result in the limit order not getting filled at all.
Other times, the order may take a while to complete.
Whatever the case may be, placing limit orders will cause a delay in your order in most cases. Unlike market orders, you can place limit orders before and after hours, and they will trigger as soon as the market opens.
Should You Place Limit Or Market Orders?
You should place limit orders if you don’t mind possibly having to wait. Despite the longer time they take to fill, limit orders are the better option for trading options.
You should only use market orders if you want to get out of a falling stock quickly or if a limit order did not fill. You can also safely use market orders on extremely liquid options such as those on SPY as long as the bid/ask spread isn’t more than a penny for the option you are trying to sell.
The ability to dictate the price you are willing to pay/receive is invaluable in a volatile and fast-moving market.
A good strategy is to place the order somewhere between the bid and ask. You can slowly bump the price up or down until the order gets filled.
What Can You Do If Your Sell Orders Don’t Fill?
Your option orders not filling can be very frustrating, but there are things you can do to reduce the chances of that happening:
- Adjust the contract quantity. Instead of placing orders in multiples of five (5, 10, 15, 20), try using odd numbers such as 3, 7, 9, 11. Institutional traders use odd numbers, so if you do so too, it increases the chance of your orders being bundled with them.
- Odd number pricing. Instead of using round prices like $10 or $20, insert odd prices like $9 or $19. The broker is more likely to find a match for your asking price.
Options have a much lower trading volume than stocks, so it is not unusual if you have to wait a bit for your options orders to execute. However, most of the time, if you are dealing in peak market hours, the orders will fill quickly, if not instantly.
The time it takes for the order to fill depends on the trading volume, the limit order pricing, and other factors. If your orders are not filling, you can try adjusting the contract quantity and asking price.