Thread by @howutrade

A thread on recent spike in one of the NIFTY option strike.
We received multiple enquires about the spike and how to mitigate?

https://twitter.com/howutrade/status/1428724803771396096

(1/n)

We can't avoid completely but we can contain it to some extent. Your fill price depends on your order priority and the size of your precedent orders. (2/n)

There is no one method that fits to all systems and users. You have to adopt different methods that suit your trading system. Ex: The method used to exit option buying may not work for exiting option selling, the method to enter pull back may not work in breakout entry. (3/n)

Below points are some of the ways we do in our systems;
1. Place SL orders instead of SL-M with buffer based on ATR. If the order is not filled in the first attempt atleast wait for 5 to 10 seconds before modifying the order. (4/n)

In our experience this 5-10 seconds is sufficient to remove redundant orders and by this time algos running across different systems will kick in and balance the exchange order book. (5/n)

2. Place SL orders for only partial quantity and place regular exit orders for the remaining quantity once the SL orders triggered and got filled.

3. Try to place stoploss before strong support and resistances or big round numbers. (6/n)

4. Try to select and trade those strikes which have high OI and volumes.

5. Try to keep your stoploss just below the day high and select the strike accordingly. (7/n)

6. Earlier when the exch has 'out of execution range' mechanism, we choose strike and premium where our stoploss is just sits before the 40%, there by avoided heavy slippages. (8/n)

7. Finally, diversify your capital to multiple strategies across multiple segments. (9/n)

If you do option buying for trending strategies better don't put SL orders in the exch, just track the price and place exit orders whenever you get exit signal. If you have bigger capital, either go for 1 or 2 down ITM buying or debit/credit spread with predefined risk. (10/n)