Economics Options And Futures Questions Medium
In options trading, a limit order is a type of order placed by an investor to buy or sell options contracts at a specific price or better. It sets a predetermined price at which the investor is willing to buy or sell the options, and the order will only be executed if the market reaches or exceeds that specified price.
When placing a limit order to buy options, the investor sets a maximum price they are willing to pay for the contracts. If the market price of the options reaches or falls below the specified price, the order will be executed, and the investor will purchase the options at the predetermined price or better.
On the other hand, when placing a limit order to sell options, the investor sets a minimum price they are willing to accept for the contracts. If the market price of the options reaches or exceeds the specified price, the order will be executed, and the investor will sell the options at the predetermined price or better.
Limit orders provide investors with more control over their options trading, allowing them to set specific price levels at which they are comfortable buying or selling. This helps to mitigate the risk of unexpected price fluctuations and ensures that the investor achieves their desired price for the options contracts.
It is important to note that while limit orders provide price protection, they do not guarantee execution. If the market does not reach the specified price, the limit order may remain unfilled, and the investor's desired transaction may not occur.