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New Post 9/25/2008 9:46 AM
  Stan
3 posts
No Ranking


Buy-writes  

Is it possible to place a buy-write order in TOS? How do you do it? Are there breaks on commissions?

 
New Post 9/25/2008 4:56 PM
  admin
26 posts
No Ranking


Re: Buy-writes  

Hi Stan,

Yes, you can place buy-write orders in TOS. On the trade tab under the strategies menu, click on "covered stock" and then click on the asking price of the strike you wish to write (sell). So if the stock costs $50 and the $50 call is bidding $2, you'll see an asking price of $48 at the $50 strike.

If you click that price, the order entry will show that you are buying shares and selling that strike. It will also default to a limit order that equals the buying the stock at the bid price and selling the call at the midpoint. Of course, you can change it to any limit you'd like (must be a debit though). You can also make it a market order.

Although you're sending one order, it is still two separate symbols so the commission will be the same as if you entered the orders separately. However, keep in mind, that you're giving market makers two of the three sides necessary for a reversal so you're far more likely to get a better price than if you entered them individually. So even though it may not appear as if there's an advantage to the buy-write (covered stock), there is a big one.

Also, the buy-write hedges the purchase price somewhat. If the stock price rises while waiting for a fill, you'll pay more for the stock but will likely get more for the call too and vice versa. The net debit won't change too much for small changes in the stock's price.

Bill
 
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