Options orders based on underlying stock price

[ouch]

Hello

Since I swing trade US stocks and was looking for ways to incorporate options into my swing trading strategies, I was wondering whether it could be possible to execute options orders based on the underlying price movement. More specifically, an option is bought or sold when the underlying reaches a certain price, sort of a stop order based on the stock price rather than the option.

thanks

[charlesK]

I believe you can accomplish what you are looking for with a Market If Touched kind of order. I think Interactive Brokers has that

[ouch]

thank you very much for the heads up. I will look into that.

[milo]

be careful with that strategy as it's not as simple as you may thinkg. There's more to the value of an option than just its underlying price. You have to take into account its intrinsic value, time value, volatility, etc

[ManhattanTrader]

Originally Posted by milo

be careful with that strategy as it's not as simple as you may thinkg. There's more to the value of an option than just its underlying price. You have to take into account its intrinsic value, time value, volatility, etc

….and spreads

[TheBirdLives]

Originally Posted by ouch

Hello

Since I swing trade US stocks and was looking for ways to incorporate options into my swing trading strategies, I was wondering whether it could be possible to execute options orders based on the underlying price movement. More specifically, an option is bought or sold when the underlying reaches a certain price, sort of a stop order based on the stock price rather than the option.

thanks

Originally Posted by milo

be careful with that strategy as it's not as simple as you may thinkg. There's more to the value of an option than just its underlying price. You have to take into account its intrinsic value, time value, volatility, etc

I do three variations of this with my (broker-supplied) software:

1. I set an alert trigger based on the bid/ask/price of the stock. When the alert fires, it generates an order to buy/sell at market. I don't use this if I can use one of the other options. The problem with a market order is you are fighting the spread.
2. I set an alert based on the stock price. That alert loads the security into the trading windows [one window for the stock, two windows for the options — one vanilla and one "advanced"]. The title of the alert reminds me of why I set it [e.g., Buy Back The Calls!] just in case I have a senior moment.
3. I use a "hypothetical price calculator" in the software to project the option price at an assumed stock price. Then I submit a limit order based on that projection. This is pretty useful — especially if you are charting the stock and have some feel for where the support and resistance levels are.

Milo is right that there are many more factors than the stock price involved in an option's price.
I use methods #1 and #3 on a trading-day basis only. That cuts down the effect of the other variables considerably, but not completely.
The "Buy Back The Calls" example in #2 could be in effect for more than a day. But it doesn't trigger a trade; it just gets my attention.

BTW: Before you ask, I don't post the name of the broker I use in an open forum. Too many lurkers. If you really need to know, PM me and we can negotiate.