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Placing Options Orders Using Stock Price in ThinkorSwim
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Dec 16, 2022
Today we'll learn how to open a brand new option position using the stock price as the trigger, and we’ll also cover how to create a stop on that option using the underlying stock price as well. Trading options using the underlying stock price is a question I hear all the time. Luckily for us, ThinkorSwim happens to be one of the few brokers out there that lets us do this, and that’s exactly what we’ll learn how to do in today's video.
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0:00
One of the questions I get asked most often is how to trade options using the underlying stock price
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Now, luckily for us, Thinkersome happens to be one of the few brokers out there that even lets us do this
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and that is exactly what we're going to learn how to do in today's video. We'll not only learn how to open up a brand new option position using the stock price as a trigger
0:19
but we'll also cover how to create a stop loss order on that option using the underlying stock price as well
0:25
Let's go ahead and first begin with the very first example I listed, so purchasing a brand new option contract
0:32
but using the underlying stock price as the trigger for that order. We'll begin by heading up to the trade page at the very top of our screen
0:40
and specifically focusing on the all products tab. This page will not only display the stock that we're looking at right up here at the top
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so in this case, AMD, but then more importantly for what we're doing today
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Down below that, we can also see all of the available options expirations for this stock
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We'll of course need to begin by finding the actual option contract that we want to buy
1:01
And in this example, let's say we were bullish on the stock. We thought AMD was headed up
1:06
In that case, one thing we could do is purchase a long call option. And we'll begin by first selecting the actual option expiration that we want to use
1:15
Now that I've opened up the 16 December expiration, if I were to look down here below
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we can actually see all of the available strike prices available to us and then decide on the one that I want to buy
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For this example, let's say we wanted to buy a call slightly out of the money
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So in this case, let's say we were looking at the $70 call. And if I look to the left of that $70 strike, I can see it's currently trading for $2.35 by $2.38
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In order to create the opening ticket to buy that option, we are simply going to click on the current asking price of $2.38
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which is then going to immediately create the order ticket down here below
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If you've been trading options on ThinkerSwim for any amount of time, then this should be pretty
1:55
familiar to you. Here we're going to be able to specify exactly how many contracts we want to buy
2:01
the price that we want to pay for that option, and even the order type that we want to use
2:05
Really just the simple things that you've probably been doing the entire time that you've been
2:09
trading on Think or Swim. However, what we want to do is create a much more advanced condition
2:14
In this case, basing our order off the actual stock price of AMD itself, not necessarily on the option price
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Now, keeping in mind that AMD is currently trading for $62 a share and we're about to buy the $70 call
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let's say for some reason we didn't want to buy this call option unless AMD went above $70 a share
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Then if AMD ever did go above $70, we wanted to put in this order to buy the $70 call
2:40
In order for us to do that we are going to come to the far right side of this order ticket and find and click on the little gear icon Clicking that we immediately open up this little conditional order pop window which is where we can then begin adding some pretty advanced conditions
2:55
It might seem like there's a lot to look at if you're seeing it for the very first time
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but for right now, what we're going to do is just focus on this bottom section right here
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called the conditions window. Here within this window, we can then specify exactly what we need to happen for our option trade to be submitted
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So in this case, this is where we can specify that we need AMD to go above 70 before we put out the order to buy this call
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Now, in order to do that, we'll first begin by coming down here below the word symbol and just clicking in that blank box
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It'll then autopulate the stock symbol that we are currently trading. So in this case, AMD, but you could adjust that to whatever stock ticker that you wanted to use for whatever reason
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although it doesn't really make a whole lot of sense to use something other than the stock that we're currently trading
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Once we got that set, we're then going to come over to the next box to the right of that and simply click in that one as well
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We're also going to leave this one set as the default, in this case the mark price, and we're essentially saying we want to base this off of the current price of AMD
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We could make it base off the bid, we could make it base off the ask, but in our case, we're going to leave it set off the mark
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Now, once that's done, we then can specify when exactly we want our order to be submitted
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And in this case, we first have to change the trigger, because I don't want this to be less than or equal to
4:11
I want this to be greater than or equal to. So I'm going to come down here and select greater than or equal to
4:17
And then over here in the threshold box, this is where I can put in the actual price of AMD
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So in this case, $70 a share. So now that I've got that set, what I'm essentially saying is that I don't want to submit the order above to purchase this $70 call
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until AMD stock goes at or above $70 a share. But we're not quite done yet because if I look up here
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the order that's about to be submitted is a limit order to buy the option at $2.38 good for the day
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So the problem with this is that we don't have any idea what this option is going to be trading for when AMD hits 70
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So putting a price up here, and in this case $2.38 doesn't make a whole lot of sense
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To fix that, we could either head up here and flip this order type over from a limit order to a market order, which I wouldn't really recommend and would essentially
5:06
mean that if AMD ever hit 70, a market order is going to get submitted to buy this contract
5:12
at whatever it's currently going for. So again, wouldn't really recommend that because we have no idea what this option is going to be
5:18
going for when that happens. And if the spread is really wide, we could end up getting taken advantage of
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We could end up paying way too much for this option. So the other thing we could do is come back up here and flip this back over from a market
5:31
order to a limit order but this time instead of us setting a manual price we could come down here and click on this then scroll all the way down to the very bottom and select Mark Looking back up here towards the top we can now see instead of us putting in a manual price
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we now have a limit offset of $0. That now means that whenever AMD goes above $70 or share
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we're going to put out an order to buy this $70 call at whatever the current mid price is on this option
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So if this option is currently trading for $1.50, our order is going to go in to buy it at $1.25, right in between the current bid ass price
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Definitely not perfect, but it's about as good as we're going to get. So now that I'm happy with that, if we were to come down here below, we can actually see in this little description box, it even lists out exactly what we're about to do
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So if you're ever a little concern that you didn't fill this out correctly, if you just come down here and read it, it'll actually list out exactly how this order is going to work
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Now in our case, everything looks good, so we're just going to come down here and hit save
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And now all I have to do is come down below and hit confirm and send
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then hit send one more time. Now that the order's been placed, I could always go back up here to the monitor page
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and then look in the working order section right here and just confirm that it is working correctly
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So now if I come over here to the far right-hand side of this order ticket as well
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and click on this little gear icon, you can see that same little window appears over here on the left-hand side, again, just describing
7:02
exactly what we did. So again, this order is going to wait until AMD ever goes above $70 or share
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and if that ever happens, an order is going to go out to buy this $70 call
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So that's going to be example one, how to buy an option using the underlying stock price
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Now, once that's done, at some point you might want to place a stop to get you out of this same option
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if the stock were to go above or below a specific price. To do that, it is going to be nearly identical to the previous example
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However, since we are doing it on an option we already own, we'll start by finding the position down here below on the monitor page
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Here we'll go ahead and open up my Apple position, which just looking at it, you can see I've got the 150 call
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I've got one of them, I bought it for $6 and currently is trading for just over $11
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With Apple currently trading at $155 a share, let's say I wanted to get out of this call if the stock ever fell to $150 or lower
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So to create that stop loss order on this call option, we will first need to begin by right-clicking anywhere on this order ticket
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So right here I can right-click anywhere on this line. Then within the little pop-up window over here on the right, I will simply come up here and select create a closing order
8:15
then come over to the right and select Sell 1 Apple Contract. It immediately take us back to the trade page where we can again see our closing order right down at the bottom of our screen Most people who are going to place a stop on an option are probably just going to come over here and flip this over from a limit order to a stop order and then put in their stop activation
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price, like in this case, we could say if this option ever drops below 9, but the way we're doing
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it right now is basing the stop off the option, not off the stock. So just like before, if we wanted
8:45
to place a conditional order on this, we would simply come over here to the far right and click
8:50
on this little gear icon. Following the exact same steps as before, we're going to come over here
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to the conditional window pop-up over here, and we're simply going to begin by clicking in the blank
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box below the word symbol, then come to the right and select method, leaving it set to mark just
9:05
like before, we'll then come to the right, and then this is where we can change the trigger
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But in this case, we actually want to leave it to less than or equal to, because we're going to
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base the price of Apple at 150. We're essentially saying if Apple goes to 150 or lower
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That's when we want to submit the order to sell out of this call. Just like before, we're not quite done
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If we look up here at the top, what we're essentially saying is whenever Apple goes to less than or equal to $150 a share
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we want this stop to go out there to get us out if it ever drops below 9
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So again, it doesn't make a whole lot of sense. And what I would recommend doing is coming up here and clicking on the word stop
9:43
and flipping it back over to a limit order. Then come on down here and flip this over from a manual trigger
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all the way down to the mark price. We could again leave it set as a $0 offset
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and what we're now saying is, if Apple ever drops below $150
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I want to get out of this call. I want to sell my call option. So if it ever drops below $150
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put out in order to sell this call and put it out at whatever the current mark price is
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but I do want to use a limit order. So if that ever happens, if Apple drops below $150
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and let's say this call is currently trading for $5 by $5.10
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I would then be putting out a limit order to sell my call option at $5.5, the midpoint between the current bid and asking price
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Now, I'm happy with that, I'll just come down here below and click save. Then we'll come over here and hit confirm and send, and we'll go ahead and send the order out there
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This order is now going to be waiting for Apple to fall below $150, and if it does, our order will go out there to sell this option
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So definitely not perfect, nothing ever is, but it's essentially the only way you'll be able to place an option
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trade based on the underlying stock price. Hopefully after that you feel a lot more comfortable with the entire process and how it's done
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It is a little bit complicated when you're first getting started, but with a little bit of
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practice, you will get the hang of it. If you found this useful and you like the idea of placing conditional orders, I've also
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made a completely separate video on how to place trades using technical indicators
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so go ahead and check out that one next. Otherwise, have a great rest of your week, and I'll catch you on the next video
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