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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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