By Mike Parnos, Educator, Trader and Hedge Fund Manager*
Posted: July 4, 2008
God gave us opposable thumbs, and they come in handy, especially when it comes to using our computer mouse (and, of course, eating). Modern technology has given us the ability to maneuver our way around a brokerage site to do our trading.
These days, most of us do our trading online. We do the research. Check out the option chain; get the option symbol; type it into the online order page. We click "send", and our precious order disappears into the wild blue yonder, only to appear on a market maker's board somewhere. Face it. It's magic, but it works.
That's all fine and good, but we know how seldom things go exactly according to plan. It's inevitable. There will come times when you have to communicate with those nice people at your brokerage firm. Perhaps your order didn't get filled. Maybe the results weren't reflected properly in your portfolio. Maybe you have questions about maintenance requirements. Maybe the TV is broken, and you're just lonely. Whatever.
Plus, although technology is indeed wonderful, some traders are still more comfortable placing their orders on the telephone. Well, let's devote a few paragraphs to the proper way to place your option order on the telephone.
I mentioned earlier that the folks at the brokerage firms that take your calls are nice folks. Basically, they are. Keep in mind that they spend their entire workday answering the phones, fielding a variety of questions and complaints. You know that, when you call, they have just finished a 45-minute call with some 80-year-old woman who doesn't understand why $.35 disappeared from her account.
It's not an easy job. It requires a substantial knowledge base, almost as much patience and a truckload of tolerance and self-control. The least we can do is give them all the information they need to do their job as effortlessly as possible.
Placing the Order
Here is a list of what you need before you pick up the phone to dial:
- Your account number
- The type of order you want to place
- Whether you're buying to open, selling to open, buying to close or selling to close
- The number of contracts
- The option symbol (4 or 5 letters [can usually be found on most option chains])
- The debit or credit amount
- Whether it's a limit or market order (It should be a "limit" order 90% of the time.)
- The duration of the order (day order, good till cancel, all or none)
This information gives your new phone buddy all the information he / she needs to process the order efficiently and in a timely fashion, and I emphasize "timely" fashion.
Why? Because, while you're fumbling around for the pertinent information, the market can move against you. That can change the option prices and render your order obsolete. The less time you spend on the phone, the better chance you have of getting your order filled at the price you want.
You ask, "With everything now being done online, why do we have to talk to brokers?" Believe me; we live in an imperfect world. Your computer will crash or freeze at the most inopportune times -- like in the middle of a trade. The broker's system will be down the one day of the month that you want to trade.
Script for a Typical Phone Order
"This is George Soros, account number 8046-1228. I'd like to put on a bull-put spread trade on the S&P 500 index. I want to sell to open 10 contracts of the SPQTO puts and buy to open 10 contracts of the SPQTJ puts for a credit limit of three dollars. This order is good for the day."
The phone rep will then repeat your order back to you, using the actual months, to confirm that is what you meant. Listen carefully. This is your chance to catch any mistakes. The phone call is being recorded to make sure your order was placed as described and to resolve any discrepancies that may arise.
Script for Checking on Your Order
The same principles apply to checking to see if your order has filled. Be pleasant. Be concise. Also, if your order has not been filled, and you wish to change it, make that decision before you pick up the phone.
"This is Charles Manson, account number 8046-1228. Earlier, I placed a bull-put spread order on the S&P 500. I'd like to check to see if it has been filled."
If your order has been filled, you can return to your couch and play with your remote control. If your order hasn't been filled, you should say, "Thank you for checking. I would like to lower the credit limit on that same order from $3.00 to $2.80."
The representative will then repeat the order back to you, with the new credit limit. Once you approve, he / she will make the appropriate adjustment.
Basically, we're just talking about common courtesy and common sense. You'd be surprised, though, how little of each exists in the real world and in the trading world. People become emotional, excited, confused and indecisive. All four of those can cost you dearly -- in your life choices and on your financial bottom line.
Keep yourself under control, and it's amazing how your personal life and your trading life will smooth themselves right out.
*Reprinted (and modified) with permission from Mike Parnos, educator, trader and hedge fund manager, of www.mike-parnos.com.
