How to Execute a Mad Hedge Trade Alert
From time to time, I receive an email from a subscriber telling me that they are unable to get executions on trade alerts that are as good as the ones I get. There are several possible reasons for this:
1) Markets move, sometimes quite dramatically so.
2) Your Trade Alert email was hung up on your local provider’s server, getting it to you late. This is a function of your local provider’s capital investment and is totally outside our control.
3) The spreads on deep-in-the-money options spreads can be quite wide. This is why I recommend readers place limit orders to work in the middle market. Make the market come to you. Better yet, if I send you a limit order at $9.00, split it up into five pieces and enter them at $9.00, $9.10, $9.20, $9.30, and $9.40. You might get the last one or two done immediately. When the high frequency traders dump their positions at the end of the day you might get filled on everything. If you enter a “Good until Cancelled” order you might get even better prices the next morning if the stock goes your way. This is what I do.
4) Thousands of market makers read Global Trading Dispatch. The second they see one of my Trade Alerts, they adjust their markets accordingly. This is especially true for deep-in-the-money options. A spread can go from totally ignored to a hot item in seconds. I have seen daily volume soar from 10 contracts to 10,000 in the wake of my Trade Alerts.
On the one hand, this is good news, as my Trade Alerts have earned such credibility in the marketplace. It is a problem for readers encountering sharp elbows when attempting executions in competition with market makers.
5) Occasionally, emails just disappear into thin air. This is cutting edge technology, and sometimes it just plain doesn’t work. This is why I strongly recommend that readers sign up for my free Text Alert Service as a back up. Trade Alerts are also always posted on the website as a secondary back up and show up in the daily P&L as a third. So, we have triple redundancy here.
The bottom line on all of this is that the prices quoted in my Trade Alerts are just ballpark ones with the intention of giving traders some directional guidance. You have to exercise your own judgment as to whether the risk/reward is sufficient with the prices you are able to execute yourself. Sometimes it is better to pay up by a few cents rather than miss the big trend. The market rarely gives you second chances.
Good luck and good trading.
John Thomas
