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Trading Guide
The OptionWiz trades are based upon an account with a starting balance of $10,000. Each trade we make is structured so that we’re not risking more than 5 – 10% of the account on any single trade. In the case of covered calls and Iron Condors, we set a stop at 5% of the account balance. For example, if we put up $2,000 on a Covered Call, we’ll close out the position if it’s down $500.
If your trading account holds less than $10,000, you may either trade half of the contacts we recommend for a trade (if we’re recommending a trade with 2 or more contracts per leg) or just trade some of our recommendations. If your account holds more than $10,000, you can simply multiply the number of contracts we recommend per trade leg by the multiplier equating to your account balance vs $10,000. For example, if you have a $100,000 account, you’d multiply each contract we recommend in a leg by 10. So, if we recommend a call spread with 2 long and 2 short contracts, you’d trade 20 long and 20 short contracts.
How to enter or exit a trade:
Unless we specify otherwise, we always recommend using a Limit Order when entering or exiting a trade. Limit orders are particularly important when entering a position with a wide bid/ask spread, such as is often the case with an iron condor. When we analyze a trade, we do so based on an entry price at or near the bid and an exit price at or near the ask. If you want to increase the probability that your order will be filled asap, place a buy / debit order at the bid price and a credit / sell order at the ask price. If you’re setting a contingent order based on the underlying price or a stop order, you will need to use a market order. We also recommend GTC (Good Till Cancelled) orders, unless otherwise specified.
Here are the common abbreviations we use when posting a trade:
BTO = Buy To Open
STO = Sell To Open
STC = Sell To Close
BTC = Buy To Close
GTC = Good Til Canceled
For orders, there are 3 possible instruction combinations. If not specified in the post, default to #1 below:
1) GTC, limit order = keep the order open until we cancel it + fill the order at or better than the price specified.
2) day order, limit order = if the order does not get filled by close of trading today, the order will automatically cancel + fill the order at or better than the price specified.
3) market order = fill the order at the market price. So, if the order is a debit order, we’ll get filled at the current “ask” price; if the order is a credit order, we’ll get filled at the current “bid” price. Note: typically, the only time we’ll use a market order is to immediately liquidate a trade to because it’s hit a stop price.