Given the sudden uptick in trade alerts I have been sending out to my Global Trading Dispatch subscribers, some 60 since August 10, I have been inundated with requests for how to execute these. So I thought I?d take some time today to expound on the basics of order execution 101.

There are three basic ways to intelligently get an order into the market:

1) The No Brainer Average In. Buy half at the in receipt of the alert and half at the close. It?s that simple. If there is a tight spread and lots of volume, just go to the market. This is what a lot of institutions do, and is why you get the volume spikes in the market at the opening and the close every day.
If you are trying to get into an illiquid position, such as a far month option, the spreads can be quite wide, possibly as much as 10%. Going to the market can mean giving up a large chunk of your profit up front. So place limit orders in the middle of the spread, giving the market makers time to lay off risk in the underlying security, or in the futures. That will enable them to tighten up the spread and fill you order without taking you to the cleaners.

2) The Principal Method. If you are a large, high net-worth individual or institution, you can call you broker and ask him to make a market in any security. He will give you a bid and an offer wide enough to compensate for the risk he is taking, and you just lift the leg you want. Warning: if your broker consistently losses money trading with you, he will quit returning your phone calls.

3) The Discretionary Method. Find a broker you trust to execute on a best efforts basis at his discretion. He will want to grow your business and will do the best price he can. Expect to pay a higher commission for this service, as you should. But a good broker worth his salt will usually earn his keep and then some, so it is worthwhile. He has the news feeds right in front of him, has access to in-house and third-party research, like this newsletter, and is talking to clients and other traders all day long. So he should use this information to your advantage. Don?t expect his service to be price competitive with discount online execution services. You get what you pay for. Better not to be penny wise, but pound foolish. Caution: many brokers won?t take these orders unless they know you well, as they are afraid of getting sued.

4) Deep In-the-Money Option Spread Orders. I have been doing a lot of these lately, as they have a built-in short volatility and time decay element to them, and are great to have when market volatility declines and then stays flat, which has really been the case all year. This is the core trade that has taken me up double digits since April.

These involve buying and option on a stock or ETF 15% in-the money and simultaneously selling short and in-the-money call option only 5% in-the-money. Only enter these as a single order for the combined spread, not the individual legs. The difference between the bid and the offered side of the market on these is big enough to drive a Ferrari through. If you just go in and buy at market you will give up half of your potential profit going in.

Let me go through a real world example. The Apple December, 2012 $620-$650 call spread requires you to buy the $620 calls and sell short the $650 calls against them. The market for these is currently $18.60 bid - $19.50 offered. If you pay the gross $0.90 spread, it eats up 5% of you potential profit. But you put in a bid at 5 cents over the middle market price of $19.05 you will get done 90% of the time and cut this cost in half.

Keep in mind that the spread orders are all done by computers these days. This means you can get executions on the individual legs that can vary widely from second to second. As long as they add up to your limit bid that?s all that matters.

Be very careful of using limit stop losses these days. In the big flash crash, some unfortunate investors got filled down 50%, especially with ETF?s. Better to let your broker to use a ?pocket? stop loss where he will call you before executing.

If you get a trade alert from me and the security has already moved 10%, don?t chase it. This has been happening a lot lately, with the recent extreme volatility. Sometimes merely going for a refill on your coffee, taking out the trash, or reading the morning papers is enough to miss an opportunity in this market. I know because I have done it plenty of times myself. Keep your discipline. Wait for the price to come back to you, or wait for the next trade alert. There are plenty of fish in the sea, and it is just a matter of time before another juicy one swims by.

Which One Did You Say I Should Buy?

I received another one of those scratchy cell phone calls from my friend in the West Texas oil patch. You could almost feel the dust coming through the ether. He said that while Ben Bernanke his committed to buying $40 billion a month of mortgage-backed securities as part of QE3, he has not promised to buy a single barrel of oil. This is bad for oil.

That means Texas Tea has to take the full brunt of collapsing demand caused by economies in free-fall like Europe, China, and Japan. There are no bailouts here. On top of that, Saudi Arabia wants to whip some discipline into its fellow OPEC members.

Saudi Arabia does this by permitting its own production to surge, dropping prices, and inflicting pain on recalcitrant cartel members, especially Iran. Around $80 a barrel is thought to be a price they would be happy with, some $15 a barrel lower than today?s price.

Last week rumors were rife of a ?fat finger? trade that drew in high frequency traders and triggered an almost instantaneous $4 plunge in the price of oil. But notice how it has failed to bounce back. This generated chart sell alerts more than you can count.

The break of the 50-day moving average on the charts is thought to be particularly significant, reversing an uptrend that has been in place since June. Notice that the ?fat fingers? always seem to hit the ?SELL? button and are oblivious to the location of the ?BUY? button ? maybe they don?t have one.

On top of all this is the never ending threat of a Strategic Petroleum Reserve release by the administration that would cause prices to immediately gap down. It is safe to say that energy is not Obama?s favorite industry. He is essentially sailing ?Buy those $100 calls on oil at your peril, because I will render them worthless.? That is what he did with his jawboning campaign in the spring when crude threatened $107. ?Substantially tougher margin trading requirements for many commodities by the main exchanges quickly followed.

One factor that no one appears to be watching is the dramatic ramp up in Iraqi oil production. In recent years, we have gone from zero to 3 million barrels a day, and appear to be headed toward 5 million barrels a day by 2015. That is half of Saudi Arabia?s total annual output. Norway and Canada are also increasing production.

Back in the U.S., conservation is making a dent on the consumption side in a thousand different ways that are impossible to quantify in the aggregate. Every time someone trades in a gas guzzler for a hybrid or electric vehicle they are cutting U.S. consumption by 24 barrels of oil a year. Toyota will sell 2 million hybrids in the U.S. this year, about half in California. That works out to a total oil savings of 48 million barrels a year, 132,000? barrels a day, or 1.3% of our total imports.

Energy savings are going on every day in a myriad of ways, from better building design, to industrial recycling of heat, and conversion of light bulbs from incandescent to fluorescent. It has become a major cost-cutting issue for U.S. corporations. I just checked the specs on my new 80 inch 3D flat screen TV and it uses a quarter of the power of its cathode ray tube predecessor now headed towards the recycling center (notice how all the actors have suddenly aged 10 years). I have always said that this will be the big sleeper on the American energy front.

The final argument is that in the wake of QE3, there is a sudden death of ?RISK OFF? positions to trade against. Oil is almost one of the only ones out there. So an oil short will partially hedge out downside risk in the substantial ?RISK ON? positions we have built up in (GLD), (AAPL), and (GOOG).

The extra turbocharger on this trade is that the hedge fund community is still hugely long oil, betting an attack on Iran by Israel that never came. As we move into yearend, the pressure on them to dump their losers will be overwhelming. So I am quite happy to buy the United States Oil Fund (USO) December $32.50-$35 put spread at $1.07 or best.

The (USO) in particular is a great instrument to play from the short side because it has one of the worst tracking errors to the underlying in the entire (ETF) universe. (Only the natural gas ETF (UNG) is worse). Notice how it always goes down faster that it goes up. This is because of the enormous contango in the oil futures market, whereby far month futures trade at gigantic premiums to the front months. The (USO) has to take the hit on the rollovers; hence, its terrible track record.

I thanked my friend for his valuable eve insights on oil and then enquired about his view on the election. He didn?t understand all the noise about an Obama win in November. There in the Texas heartland he didn?t know a single person who was voting for the president. I warned him to prepare to be surprised about the November 7 outcome.

The trick is to watch the polls in the ten battleground states, where Obama is ahead by 5-8 points. The national polls have largely become irrelevant. Texas and California have cancelled out each other in the electoral college, so we might as well go out and get drunk on election day.

I asked him to put his money where his mouth was and bet him a case of Sierra Nevada Pale Ale. He answered that I was on, and countered with a case of Lone Star beer. Delivery would be made at Billy Bobs in Houston where the Texas sized 24 ounce chicken fried steaks droop over both sides of the plate. I told him I would collect after my upcoming Houston strategy luncheon on Wednesday, November 7.

Suddenly, Oil is Not Looking So Hot.