Today I had to fix a mistake I made with my Jabil (JBL) LEAPS.
Yesterday I reported that I bought a Jabil (JBL) 1/21/22 $45 LEAPS. Well, I made a mistake when placing that order. This happens once in a while. I reported another mistake with an order about 2 months ago. Which was a very similar mistake to the one I made yesterday.
When placing the order to buy the JBL LEAPS I should have hit “Buy to Open” but I hit “Sell to Open.” While I thought I bought an option, I actually sold one. The buttons are very close to each other, and when you have a lot on your mind this happens more than you would like. When placing an order you really have to concentrate. Clearly I wasn’t!
I noticed the mistake early this morning. The problem was, there’s a large gap between the Ask and the Bid. If you look at the Ask and the Bid on the 1/21/22 $45 Calls the gap is about $2.50, which is large. Let me try to explain this problem.
Let’s say the Bid is $6 and the Ask is $8.50. If I want to buy an option I would have to pay $8.50, or close to it. If I wanted to sell an option I would receive $6, or close to it. When I’m buying an option I would place my order somewhere between the 2 prices and hopefully I’ll get filled. In this example I would place a Buy to Open order at about $7.25 and see what happens. Sometimes when the stock fluctuate I’ll get filled. This example is pretty close to the numbers in my mistake yesterday. Not exactly but let’s stay with this example. If I was filled at the $7.25 on a Sell to Open but I thought I hit Buy to Open, I would have the $7.25 put into my account and not $7.25 taken out. Now, I noticed the mistake. I want to get out of the position because I want a long Call Option. Since I was filled on my Sell to Open, to get out I have to place an order of Buy to Close. I have to buy the Call I just sold. But now it might cost me $8.50 to get out. I would lose $1.25 if I had to pay the $8.50, which is the Ask price.
So how did this mistake play out? In my real trade I did the Sell to Open at $6.80, the Ask at the open of the market today was $9.20. If I paid that to close the position I would have a huge loss. I placed my Buy to Close order at the same price as I got in the position, $6.80. Clearly that was not getting filled. But I just left the order in place to see what happens. I really needed the stock to go down to get the premium down. To my surprise, and delight, the stock started going down. As I write the stock is down $1.88, and a little while later my order was filled at $6.80.
The bottom line is, I got out of my mistake position at the same price as I got in. No harm! Again, one of my mistakes worked out for me. Doesn’t always happen. Be very carful when placing orders. I think I should follow my own advice!
Sell to Open Mistake
Sell to Open 10 JBL 1/21/22 $45.00 C @ $6.80 ($6800)
Buy to Close
Buy to Close 10 JBL1/21/22 $45.00 C @ $6.80 ($6800)
I’m very happy this worked out. This explanation might be confusing for Grasshoppers. If you have any questions send me an email.
Successful trading,
Steve
The Options Coach