|
What is a multi-leg option? How does a multi-leg option differ from a regular option?
|
An option is a contract that gives the
owner the right to buy or sell a security at a specific price within a specific time limit. The owner of an
option contract is not obligated to exercise the option contract. Multi-leg options are two or more option transactions,
or "legs," bought and/or sold simultaneously in order to achieve a certain investment goal. Typically, multi-leg options
are traded according to a particular multi-leg option trading strategy.
|
The underlying options that make up the multi-leg
trade are regular put or call options. Customers can leverage multi-leg strategies to capitalize on their feeling on the
market: bullish, neutral, or bearish.
|
|
Top |
|
What is an option chain?
|
An option chain is the list of
all the options available for an underlying security.
|
|
Top |
|
Am I obligated to buy or sell an option's underlying security?
|
The owner of an option contract is not obligated
to buy or sell the underlying security. However, the seller of an option, if assigned, is obligated to buy or sell
the security at the strike price.
|
|
Top |
|
Why would I buy options instead of buying the underlying security?
|
You might buy an option instead of the underlying
security in order to obtain leverage, since you can control a larger amount of shares of the underlying security with
a smaller investment. This gives you the potential for a higher-percentage return than if you were to buy the stock
outright. However, with possibility also comes higher risk. If you buy options instead of the underlying security,
your options can expire worthless—but if you buy the stock, you still own the shares.
|
|
Top |
|
What requirements must I meet in order to trade options at Fidelity?
|
You must meet the following requirements to trade
options at Fidelity:
- A brokerage account
- An option agreement on file with the appropriate option level for the trade you're attempting to place
- A margin agreement on file (depending on the type of trade)
- Sufficient buying power in your account to cover the margin requirement for the trade.
|
|
Top |
|
After I make a multi-leg options transaction, when does it appear on my Order Status screen?
|
After you make a multi-leg options transaction,
it (and its status) will appear immediately on your Order Status screen. The status is updated intraday on your Order
Status screen.
|
|
Top |
|
Where can I go to learn more about option trading in general?
|
Fidelity.com offers comprehensive option educational
material from the Chicago Board of Options Exchange (CBOE), the Options Institute (OIC), and First Traders Analytical
Solutions. Access this material at Quotes & Research > Options.
|
|
Top |
|
Can I cancel an option order? Can I cancel and replace an option order?
|
You can attempt to cancel an option order
from the Order Status screen by selecting the order you wish to cancel and clicking "Attempt to Cancel." Similarly,
you can attempt to cancel and replace an order by clicking the order you wish to cancel and replace and clicking
"Attempt to Cancel and Replace." You can attempt to replace the leg quantities, limit price, or trade conditions on
the trade.
|
|
Top |
|
What information does the Option Chain tool provide?
|
The Option Chain tool provides a complete list of
puts and calls for an underlying security. Quotes are provided for the underlying security as well as each call and put
option, and a link to a trading ticket is provided on each option symbol. The Option Chain tool also gives you the ability
to filter your results based on criteria you select.
|
|
Top |
|
When should I use the Pairing tool?
|
Use Pairing tool if you know you are going to place
a multi-leg option strategy trade, and you know both the strategy you are going to use and the underlying security on
which you are going to place the trade.
|
|
Top |
|
What kind of information does the Pairing tool provide?
|
The Pairing tool provides options on an underlying
security paired by the multi-leg strategy you selected, displayed with the "natural" or net price. The natural price is
the NBBO price for each of the individual legs as priced on a single market. The
Pairing tool has a link to a multi-leg trade ticket. If you click this link, the trade ticket is pre-filled with information
from the Pairing tool, making the process quicker and easier, giving you the opportunity for improved pricing.
|
|
Top |
|
What kind of options trading strategies can I use at Fidelity?
|
Fidelity offers both single and multi-leg option
trading strategies on up to three option legs. Depending on your option level, you can buy or sell puts, buy writes,
spreads, straddles, strangles, combinations, butterfly spreads, and collars.
|
|
Top |
|
How do I refine my search after getting some results with the Pairing tool?
|
To refine your search, select a new symbol,
strategy, expiration month, range between strike prices, or opt to view all in the money strike prices or all
out of the money strike prices.
|
|
Top |
|
What parameters must I know for sure when performing a search with the Pairing tool?
|
When using the Pairing tool, you must
know the multi-leg strategy you wish to use and the underlying security you'd like to trade.
|
|
Top |
|
How do I access a trade ticket from the Pairing tool results screen?
|
Access a trade ticket from the Pairing tool results
screen by clicking the NBBO Bid or Ask for the option pair you want to trade. The trade ticket will be filled in for you,
so that you only have to supply the quantity for each leg and any trade conditions you would like to place on the trade.
|
|
Top |
|
What does "NBBO pricing" mean?
|
NBBO pricing means that Fidelity customers are eligible
to receive the best single market prices for any multi-leg option trade up to 50 contracts. This means customers can feel
confident that their orders are receiving the best prices available on their multi-leg trades because Fidelity is looking
at the best prices for each individual leg on one of the six exchanges (AMEX, CBOE, ISE, PCS, BOX, or PHLX) and ensuring our
customers receive that price.
|
Note: Strategy prices displayed
represent indications of interest, or theoretical values based on the disseminated prices of the individual legs. Indicative
prices are not firm quotes, and therefore they may not be available when an order is sent for execution. Certain market
conditions may impact eligibility for NBBO pricing, including orders entered during fast market condtions, orders entered
when a security has halted trading, and orders entered when circumstances result in a non-firm quote condition.
|
|
Top |
|
What kind of information does the Strategy Evaluator tool provide?
|
The Strategy Evaluator tool allows you to compare up to two multi-leg strategies on one underlying symbol.
After searching, the results are paired by strategy and displayed with the
"natural," or net, price. The Strategy Evaluator also allows some modeling based on your view of the
market, as you can enter the move you think the underlying security is going to make during the life of
the option and the percentage return you would like to achieve. You can sort this information several
ways, in both ascending and descending order.
|
The natural price is the NBBO price for each individual leg as priced
on a single market. The Strategy Evaluator tool has a link to a pre-filled trading ticket, making the
process quicker and easier, giving you the opportunity for improved pricing.
|
|
Top |
|
When should I use the Strategy Evaluator tool instead of the Pairing tool?
|
Use the Strategy Evaluator tool if you would like to compare multiple strategies on the same underlying, whereas the pairing tool should be used if you know the underlying and the strategy and simply want to see the pairings. The Strategy Evaluator, unlike the Pairing tool, also allows you to model the results based on "hypothetical" moves on the underlying and potential returns of the pairs based on these moves.
|
|
Top |
|
How many securities can I enter at one time on the Strategy Evaluator tool?
|
You can enter one underlying
security on the Strategy Evaluator tool per request. To compare multiple symbols, you would need to make separate requests.
|
|
Top |
|
What parameters must I know for sure when performing a search with the Strategy Evaluator?
|
At a minimum, you must provide an underlying security and at least one multi-leg options
trading strategy, however the tool wil allow you to evaluate one underlying symbol against up to two strategies as well.
|
|
Top |
|
Once I've used the Strategy Evaluator tool, how do I sort the results?
|
Once you've used the Strategy Evaluator tool, you can sort your results by a specific field (e.g.,
$ Earned), as well as in ascending or descending order.
|
|
Top |
|
How do I access a trade ticket from the Strategy Evaluator results screen?
|
Access a pre-filled multi-leg option trading ticket by clicking on the NBBO Bid or Ask for the option pair you
want to trade. The only information you need to supply on the trading ticket is the quantity for each
leg and any trade conditions you would like to place on the trade.
|
|
Top |
|
Why should I use the multi-leg option trading ticket and not the single leg option trading ticket?
|
| When placing a multi-leg option trade,
use the multi-leg option trading ticket because:
- You can enter and execute all of the legs of your trade at the same time, based on the pricing
you requested. Though you could enter each individual leg on a separate ticket, you risk having
one of your legs go off while another one doesn't, or having both go off but at prices you didn't
expect.
- You are entitled to NBBO pricing based on the best prices
for each individual leg of your strategy priced on one of the six exchanges (AMEX, CBOE, ISE,
PCX, BOX, or PHLX).
|
|
Top |
|
What kind of information does the Strategy Evaluator tool provide?
|
The Strategy Evaluator tool allows you to compare multi-leg strategies on up to five underlying symbols
across multiple strategies. After searching, the results are paired by strategy and displayed with the
"natural," or net, price. The Strategy Evaluator also allows some modeling based on your view of the
market, as you can enter the move you think the underlying security is going to make during the life of
the option and the percentage return you would like to achieve. You can sort this information several
ways, in both ascending and descending order.
|
The natural price is the NBBO price for each individual leg as priced
on a single market. The Strategy Evaluator tool has a link to a pre-filled trading ticket, making the
process quicker and easier, giving you the opportunity for improved pricing.
|
|
Top |
|
When should I use the Strategy Evaluator tool instead of the Pairing tool?
|
Use the Strategy Evaluator tool instead of the Pairing tool if you are unsure which strategy to employ,
but know what underlying security you want to buy—or if you are unsure which underlying security
you want to buy, but know which strategy you want to employ. The Strategy Evaluator also offers some
information related to "hypothetical" returns.
|
|
Top |
|
How many securities can I enter at one time on the Strategy Evaluator tool?
|
You can enter up to five underlying
securities on the Strategy Evaluator tool.
|
|
Top |
|
What parameters must I know for sure when performing a search with the Strategy Evaluator?
|
At a minimum, you must provide up to five underlying securities and at least one multi-leg options
trading strategy, but you may provide multiple strategies as well.
|
|
Top |
|
Once I've used the Strategy Evaluator tool, how do I sort the results?
|
Once you've used the Strategy Evaluator tool, you can sort your results by a specific field (e.g.,
$ Earned), as well as in ascending or descending order.
|
|
Top |
|
How do I access a trade ticket from the Strategy Evaluator results screen?
|
Access a pre-filled multi-leg option trading ticket by clicking on the NBBO Bid or Ask for the option pair you
want to trade. The only information you need to supply on the trading ticket is the quantity for each
leg and any trade conditions you would like to place on the trade.
|
|
Top |
|
Why should I use the multi-leg option trading ticket and not the single leg option trading ticket?
|
| When placing a multi-leg option trade,
use the multi-leg option trading ticket because:
- You can enter and execute all of the legs of your trade at the same time, based on the pricing
you requested. Though you could enter each individual leg on a separate ticket, you risk having
one of your legs go off while another one doesn't, or having both go off but at prices you didn't
expect.
- You are entitled to NBBO pricing based on the best prices
for each individual leg of your strategy priced on one of the six exchanges (AMEX, CBOE, ISE,
PCX, BOX, or PHLX).
|
|
Top |
