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Hey everyone. Welcome back. This is Kirk here again at Option Alpha and welcome back to the daily call. On today's call, we’re going to talk about the pros and cons of using a market order when trading options. I think a market order is a very simple concept to understand. It’s a very simple way to get trades into the market, but I think that there's a lot more drawbacks than there are potential pros, especially for an options trader as opposed to potentially doing this on stocks. Where you find many people using market orders is with stock. Stock I think is okay to do a market order, especially if you’re trading a highly liquid underlying because typically, the bid ask spread and the liquidity is so great that a market order gets filled basically at decent pricing or at market pricing. But where we typically run into issues is when people start using market orders with options. First, let’s understand what a market order is. A market order is basically telling your broker’s platform or your broker that you literally want to get filled at the next available price. Now, this is where you can obviously see the downfall to using a market order. The next available price could be potentially $1 higher. It could be $3 higher. It could be $15 higher in value then what you think or what maybe I think that the most appropriate price should be for a position. This is typically really bad for options traders when you get into a situation where you’re trading a stock that has a very wide bid ask spread. Let’s say you’re trading options on a stock that’s around $100 and the at the money strikes… Even though at the money strikes typically are more liquid, the at the money strikes maybe has a bid ask spread between $.80 and $120 per contract. What I mean is $.80 and $1.20 of option pricing, so basically a $40 or $.40 (however you look at it) spread between the bid and the ask. Most of the contracts might actually be traded at somewhere around the mid-price. Just because the bid ask spread is $.40 wide doesn't mean that every single trade is traded at the furthest end of the extreme. Most of the contracts might actually be traded around $1, so in between the $.80 and $1.20 bid ask spread, they might be traded around $1. If you actually place an order into the market and you place a limit order that says, “I only want to pay $1 or better for this contract or I only want to sell this contract for $1 or better.” Then that’s probably where it will end up getting filled. Now, pricing can move and it might not fill right away and may take a little bit longer to fill. It may actually totally move off of that price and maybe not trade at that price again. You might have to adjust your pricing and say, “Okay. I’m willing to pay $1 or $2. As an option seller, I’m willing to take $.98 versus $1.” That’s what we’re talking about with limit orders, with limiting the amount of money that we’re willing to pay or collect for the actual transaction. With a market order, you are literally telling the market that you will accept whatever the next price is that your most important factor for this order going in is actually getting filled. That price is basically irrelevant. When you actually put in a market order on your broker platform, price disappears and there’s like… I know inside Thinkorswim, it’s like a little squiggly line that shows up which basically shows you that you’ll get filled at whatever price is available next. Now, you could get filled at $1, you could get filled at $1.20, you could get filled at $1.50, you could get filled significantly below. It is basically going to be in most cases, worst-case pricing for you because you want to get filled as quickly as possible. I highly, highly suggest that you do not use market orders for trading options. I think that limit orders are more than sufficient for getting into or out of trades even if you're rushed, even if you're in need of getting into or out of a trade quickly. I think you can just as easily adjust your pricing, so that you know in advance what you're paying or what you’re getting for an options contract. I have found all too often that many people who use market orders end up paying and basically receiving very ridiculous pricing more often than not. Could you get good pricing? Maybe, but I don’t know if it’s something you want to roll the dice with and I think it’s definitely a huge downside to trading options. Like I said, if you want to use market orders for stock trading, okay, maybe you have a better case that can be made there because stocks are more liquid in most cases if you’re trading off of a very short watch list and there’s lots of liquidity that you can get into and out of it maybe with a penny shaved off for liquidity and a market order. But when it comes to options contracts, you absolutely should know what you're paying or what you’re getting for a contract and go ahead and adjust those limit orders multiple times. It may not fill right away. We don’t often have things that fill instantly. It takes a little bit of time to line up the parties. But it's worth it in the end not to overpay or under-collect for an option contract. Hopefully you guys enjoyed this today. As always, if you have any comments or questions, let me know. Until next time, happy trading!