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Educational Article

Day Order versus Good-until-Cancelled

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What is the "double fill"? A trader's nightmare, if he is trading nears his maximum margin limits or his available cash for this transaction. Why? Because if the trader forgets that he has a GTC (Good-until- Cancelled) order on the books, he will wake up the next morning and proceed to put on his position let's say 10 of those XYZ Sept 50 calls @ $2.10 and when he gets his fill, boy is he surprised to find out he has gotten not 10 contracts filled, but 20! Yes, 20! Why, because he forgot that he had placed a GTC order and it doesn't cancel at the end of the day. So when he put in his order, it was like placing a second orders for 10 additional XYZ Sept 50 options. See the problem if you have only limited cash or limited margin. You have to liquidate or sell off a position. Brokerage firms do not like you buying options that settle next day and you then you have to sell something in your account that may not settle for several days. Can we say," Margin call or Sell out, boys and girls." As the late Mr. Rodgers would say," I knew you could."

This is one of the reasons why traders do not utilize the GTC order nearly as much as the Day order. With the day order, when the day is done, there is nothing to remember, everything not filled is cancelled and tomorrow brings a new day. Unlike the GTC, which you have to remember each and everyone that you have placed Multiply 10 spread positions some put buys and some OPEN orders or Gut's at limit prices and you could have a truck load of not so pleasant surprises.

So when do I use a GTC or good until cancelled order?

The best time is when you have a limit of stop order you would like to place.

Why? Let's just say you had a stop order (DAY ORDER) to close a XYZ SEPT short put @ 3.00 STOP with the option currently only trading at $1.00. So the day ends and your day order is expired and you have to place it again tomorrow. DANGER WILL ROBINSON! The XYZ Company just announced some disappointing earnings, right after the close. Well you already know where I am going. Flash to the next morning and the option open up at $2.50 and is now trading at $9.50. Well, had you had a GTC order in instead of that DAY order? You would have been more then likely out at $3.00, and not looking at a minimum exit and loss at $9.00, if you can get executed. And don't think it doesn't happen, there are buyouts and crashes in individual issues all the time, and unlike a train wreck, you dont see these events coming.
Just the small difference in that DAY order of GTC, can and will make the difference in some of your trades, and one at least a few occasions a large difference.

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