How To Buy or Sell A Stock/Option
January 1, 2018
“In investing (or trading), what is comfortable is rarely profitable.” — Robert Arnott
Happy New Year! Looking back on 2017 the top request I received, surprisingly, is how does a trader actually make a trade? What follows will be a step by step guide to entering and exiting a trade. Though this post isn’t directly about finding trades at the end are links to my other posts on the topic.
TDAmeritrade Trader is my favorite mobile app for finding, placing, monitoring, and finalizing a trade. This basic guide for performing a trade will utilize screenshots from this app.
How to Enter A Trade
What follows are screenshots in app of how to place a trade in TDAmeritrade Trader.
1) Type in your Stock Symbol.
2) Click done or click on the AAPL symbol to navigate.
3) The AAPL Main screen will appear. Note the tab navigation, chart period, and chart area. The chart can be customized with indicators and overlays by clicking in the chart area and selecting options.
4) Click on the Options tab.
5) Note the Exchange and Strike options. I use NYSE and 10, respectively.
6) Scroll down. Note the Calls versus Puts display. Long hold on an option’s Ask price to open a new Options navigation.
7) A new Options navigation will open. Note this view is similar to the stock view. Option charts can be viewed here. Note the Sizzle Index and P/C Ratio.
8) Click On View Quote Details to see more info. Adding an Alert or Watchlist options are also available.
9) Click the Trade button at the top right to start a trade.
10) In the Order Editor the option quantity, Limit price, and trade order time can be selected. Note the same process can be done for trading a stock in the Stock view.
11) Note changing the quantity or price will gave the total trade value update. Click the Confirm button.
12) The Trade Confirmation window will appear. Here the trading account can be selected. Review the trade information to be sure accurate. Click Trade button in the upper right.
13) An Order Confirmation window will appear to confirm Order was sent.
14) Clicking through the Close option will show the Orders navigation. Various Order status can be reviewed with the top navigation. Orders can be accessed anywhere in the Trader app view the bottom navigation and clicking the Orders button.
15) Clicking on an Order will open up the specific Order information. A Pending Order can be canceled, replaced, copied, or started as the opposite of the current order. Note the other options to view the underlying stock, option info, and option chart.
How To Exit A Trade
1) Click the Options button at the bottom in the main navigation.
2) The Positions window will appear. Click the arrow next to a stock symbol, for a position held, to see more info.
3) Click in a stock or option holding will open the Order window. Note the black paper icon appears next to pending Order.
4) In the Order window a position can be closed, a new alert can be created, and more. Click Close Position to exit a holding.
5) Note the further options in the Positions window.
6) Follow the steps 9) through 15) in the Entering A Trade section to complete a trade Exit.
Twitter Shorthand For Trading Suggestions
If you aren’t following me on Twitter yet please find my profile here:
My tweets can be received via mobile phone by texting 40404 and responding with “follow @MBATMann.” A Twitter Account isn’t needed to receive my tweets to your phone.
How Does One Read The Following Tweet?
Bullish on $AAPL. Suggest $170.00 1/5/18 Calls @$1.20 area.
This simple tweet tells a trader much about a trading suggestion. Here’s the tweet broken down into pieces.
Bullish means the stock for Apple Inc. is predicted to go up from the time of tweet.
$AAPL is the trading symbol for Apple Inc. so that the company can be searched and a stock/option trade be researched or placed. The $ symbol is a way to tag stock symbols on Twitter as well.
$170.00 refers the Strike price of the options underlying $AAPL being suggested. This is the price $AAPL Calls can be exercised to buy 100 shares of $AAPL at $170.00 each per 1 option (contract).
1/5/18 refers to the Calls expiration date. At trading close, 1600 EST, on 1/5/18 these Calls would expire with no ability to trade or exercise further.
Calls refer to stock options that allow the buyer to exercise the option contract at the Strike price. A Calls buyer is predicting the underlying stock to go up in value. If $AAPL goes above $170.00 then the buyer of the Calls could exercise the options for 100 shares of $AAPL stock per option contract, and sell for a profit above the $170.00 per share price (less trading fees).
@$1.20 area refers to the asking price for the Calls at the time of tweeting. An option, and a stock, have a Bid and Ask price. Refer to the What Is A Bid and Ask section for more info.
What This Tweet Does Not Say
What the suggester’s strategy is for finding the trade.
- Was technical analysis only used?
- Was fundamental analysis applied?
- Was company and industry news considered?
For how long to hold the trade.
- The 1/5/18 expiration does give a trader a clue that these are Weekly options, and expirations is very close.
- Weekly options generally have less option volume than Monthly options.
- One could infer that a very short-term holding of the trade suggestion is needed.
When should the trade be exited.
- It is best to set up a Greed Line. A point of value or % of increase to exit the trade prior to performing the trade.
- It is best to set up a Stop Loss. A point of value or % decrease to exit the trade to avoid large loss.
What Is Bid and Ask?
It is important to understand the difference between the Bid and Ask to enter and exit a trade with higher gains. It is important to utilize a limit order when entering or exiting a trade so that the desired price can be obtained. Most trading platforms default to a limit order.
The Bid refers to the highest price a Buyer is willing to pay. A trader as the Buyer wants the lowest entry price as possible. The Seller has to be cognizant of the Bid price because this is the price at which exiting a trade will occur the fastest. The Seller could place a higher price sell request and it could be between the current Bid and Ask or this requested price could become a new Ask.
The Ask refers to the highest price a Seller is willing to sell at.
The Spread refers to the difference between the Bid and Ask. A smaller Spread usually signals a currently popular opportunity. A trader generally looks for a smaller Spread in an entry to avoid long entry waits.
Paper versus Live Trading
I’m a strong advocate for using virtual funds to try out a new trading strategy. TDAmeritrade offers a Paper Money Account for all who hold a trading account. The user can select between paper and live/real money accounts in the Account section.
Further Posts To Read
Other References
