Options Order Types Explained: Market, Limit, and Stop
The order type you choose determines the price you pay or receive for your options trade. Using the wrong order type on options can cost you significantly more than on stocks, because options have wider bid-ask spreads and thinner order books.
Market Orders
A market order fills immediately at the best available price. For the buyer, that means the ask. For the seller, that means the bid.
When to use on options: Almost never.
Why it's risky for options:
Stock bid-ask spreads are often $0.01. Options bid-ask spreads can be $0.20, $0.50, or even $2.00+. A market order on a stock costs you a penny in slippage. A market order on an option can cost you dollars per share.
Example: Option bid: $3.00, ask: $3.60. A market buy fills at $3.60. A limit buy at $3.30 (the mid-price) might fill there, saving you $30 per contract.
The only exception: If you need to exit a position immediately during a fast-moving market—a stop loss situation where getting out matters more than the price. Even then, a marketable limit order (a limit slightly worse than the current bid/ask) is usually better.
Limit Orders
A limit order specifies the maximum price you'll pay (buying) or minimum price you'll accept (selling). It only fills at your price or better.
When to use on options: Every single time.
How to price a limit order:
| Action | Starting Limit | Adjustment Direction |
Example fill process:
For multi-leg orders (spreads, iron condors), limit orders are even more critical. A market order on a four-leg iron condor can produce terrible fills across all four legs.
Stop Orders
A stop order becomes a market order when the option reaches a specified price. It's used to automatically exit a position at a predetermined loss level.
Stop to sell (stop loss on a long option):
Stop to buy (stop loss on a short option):
The problem with stop orders on options: When the stop triggers, it becomes a market order and fills at the current bid (for sells). During volatile moments—exactly when stops trigger—bid-ask spreads widen. Your stop at $2.50 might fill at $2.10 or worse because the bid collapsed during the selloff.
Stop-Limit Orders
A stop-limit order combines a trigger price (the stop) with a limit price. When the stop is hit, it creates a limit order instead of a market order.
Example:
This gives you price protection, but introduces the risk of not filling at all. If the option drops through $2.30 without finding a buyer at that price, your order sits unfilled while the option continues falling.
When to use: When you want automated loss management but can tolerate the risk of a non-fill. Best on liquid options where the bid is unlikely to gap through your limit.
Contingent and Conditional Orders
Some brokers offer orders that trigger based on the underlying stock price rather than the option's price:
Stock-contingent order: "Sell my AAPL $190 call when AAPL stock drops below $185."
This is more reliable than using the option's price as a trigger because stock prices are more liquid and less prone to stale quotes. Not all brokers support this, but it's worth using when available.
Order Types for Multi-Leg Strategies
When trading spreads, iron condors, or other multi-leg structures:
Example: Bull call spread on SPY. Buy the $550 call, sell the $555 call.
Time-in-Force Settings
Day order: Expires at market close if unfilled. The default for most option orders.
GTC (Good Till Cancelled): Stays active until filled or manually cancelled. Useful for setting up exits in advance.
For options, day orders are usually appropriate because prices change significantly day to day. A limit price that's reasonable today may be stale tomorrow.
Practical Recommendations
Always use limit orders on options. Start at the mid-price. Adjust gradually if needed. Treat market orders as an emergency-only tool. For automated exits, consider stop-limit orders on liquid names and stock-contingent triggers where available.