Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 312

Number Of Contracts - How many contracts you want to trade. Remember that each contract normally represents 100 underlying shares.

Option Symbol - This is the symbol of the particular option you want to trade such as FAJ.

Price Specification - There are four types and they are quite similar to those we covered for ordering stocks:

  • Market Order - You are willing to pay (if buying) or receive (if selling) the going market price. This is a good choice if you must get in on the trade fast, but it is not my recommended method of trading. You should never let the market determine what you pay or receive for a trade. You may end up paying a lot more or receiving a lot less than you expected. Another problem with market order is that you rarely can cancel such an order. Once your order is entered, it is immediately passed on to the exchange for execution for whatever price the market is willing to buy or sell. Let's say you want to buy 2 FAJ contracts. You check the quote on these contracts which shows a premium of $2. Entering a market order to buy these two contracts at market price may get you your contracts at $2 or it may get them at $2 1/4, whatever the current asking price. It is also possible that you pay less than the $2 premium if the price suddenly drops while you complete your order.
  • Limit Order - This is my favorite way of ordering and it is the only way to avoid surprises. You are specifying to your broker how much you would be willing to pay or to receive for the trade. Let's say that you are writing 2 FAJ contracts with a limit order of $2. You can rest assured that you would receive no less

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Table of Contents
Copyright and Disclaimer
Book Chapters
Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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