Execution and Contract Lifecycle · Options Trading Guide
A strategy becomes a real position through fills, not midpoint marks. Build an order that controls price and preserves the intended relationship between its legs.
Write the order as a position change
Identify whether each leg buys or sells to open or close, its quantity, strike and expiration. Use the contract multiplier to translate the quoted net price into cash. Check that a credit entry has not become a debit or that a closing instruction will not accidentally increase exposure. A preview screen is an opportunity to reconcile the order with the planned payoff.
Control price without assuming a fill
A limit defines the least acceptable sale price or greatest acceptable purchase price. It does not guarantee execution. A market order prioritises execution and can encounter a very different price when quotes are thin or moving. For a spread, a supported combined order specifies a net price across its legs. Independently entering the legs can temporarily create exposure absent from the completed strategy.
Count the whole trading cycle
Assume one fictional two leg spread costs $2.40 to open and is sold for $3.10. Gross profit is $70 with a 100 multiplier. Four contract transactions across entry and exit at $0.65 each cost $2.60. If additional applicable charges total $1.40, net profit is $66. A more conservative exit at $2.90 would reduce that result to $46. Small execution differences matter when the expected edge is modest.
Respond to partial fills deliberately
Record filled quantities before replacing or cancelling an order. Cancellation requests can cross an execution in flight, so confirm the final status. If only part of a multi unit order fills, compare the resulting position with the risk budget before adding more. Preserve actual fills, charges and timestamps in the journal. An attractive mark on an unfilled order is not a realised opportunity. Review exit liquidity as carefully as entry liquidity, particularly around announcements and expiration.
Try it yourself
A spread bought for $1.80 is sold for $2.25. Total trading costs are $6 for one standard spread. What is net profit?
Show the worked answer
The premium gain is $0.45 × 100 = $45. Subtracting $6 leaves $39. This assumes both quoted transaction prices were actually filled.
Further reading
Educational material. Examples and rates are hypothetical, not trade recommendations. Product terms, eligibility and risks vary by venue and jurisdiction.
