Options trading offers a high degree of flexibility, allowing traders to execute strategies tailored to their risk tolerance and market expectations. 

However, with that flexibility comes the need to understand the various order types available. The type of order used can directly affect trade execution, pricing, and overall trading success.

This article will break down the main types of options orders, explaining their differences and how they are used in the market.

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1. Market Orders – For Quick Execution

A market order is the simplest type of order in options trading. It executes instantly at the best available price, providing traders an option to enter or exit positions quickly without waiting for a set price. The main advantage is its speed, ensuring fast trade execution.

Best for: Traders who prioritise execution speed and are not concerned about small price variations.

Downside: Since a market order fills at the current bid or ask price, traders have no control over the execution price. In volatile markets, the final trade price may differ from what was expected.

Example: Placing a market order to buy an option contract means it will execute at the current ask price. Similarly, a sell market order fills at the current bid price, which may be lower than expected.

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2. Limit Orders – For Price Control

A limit order lets traders specify the exact price they want to buy or sell an option at.

Unlike market orders, it only executes when the market hits that price, offering more control but with the risk of the order not being filled if the price doesn’t reach the set level.

Best for: Traders who want to control their trade price rather than accepting whatever is available.

Downside: There is no guarantee that the order will be executed. If the market price never meets the limit price, the trade remains unfilled.

Example: If you place a limit order to buy an option at $2.00 and the current price is $2.10, your order will not execute unless the price drops to $2.00. Similarly, if you place a sell limit order at $3.50, your order will only execute when the price reaches or exceeds $3.50.

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3. Stop Orders – For Risk Management

A stop order is used to limit potential losses or protect gains. When the option’s price reaches a specified stop level, the order converts into a market order and executes at the next available price. This is a common risk-management tool for traders who want to exit positions before losses mount.

Best for: Traders who want an automatic trigger to exit a losing position before it worsens.

Downside: Since a stop order turns into a market order upon activation, it may execute at a price lower (if selling) or higher (if buying) than expected, especially in fast-moving markets.

Example: If you own an option at $5.00 and set a stop order at $3.50, the order activates once the price drops to $3.50. However, if the market moves quickly, your final sell price may be lower.

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4. Stop-Limit Orders – Precision With Protection

A stop-limit order provides more control than a standard stop order. When the stop price is reached, the order converts into a limit order rather than a market order. This means the trade will only execute at the set limit price or better, preventing unwanted slippage.

Best for: Traders who want to limit losses but avoid selling at an unfavourable price.

Downside: If the market price moves too quickly past the stop and does not return to the limit price, the order may never execute, leaving the trader exposed.

Example: Suppose an option is trading at $5.00, and you set a stop at $4.00 with a limit of $3.90. The trade will only execute within that price range. If the price drops too fast, hitting $3.85 before it reaches $3.90, the order remains unfilled.

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5. Buy To Open (BTO) & Buy To Close (BTC) – Entering & Exiting Long Positions

Buy to Open (BTO) is used when purchasing an options contract to establish a long position. This applies to both call and put options, allowing traders to speculate on price movements or hedge their option positions against potential losses in their stock holdings.

Buying a call option lets traders benefit from rising prices without buying the stock, while a put option provides downside protection.

Buy to Close (BTC) is the order used to exit a short options position that was previously sold. If a trader initially sold an option contract using a Sell to Open (STO) order, they must use BTC to close the position and either lock in profits or limit losses. 

This is particularly important for traders with uncovered (naked) options, as the risks can be significant if the market moves against them.

Best for: Traders looking to enter a new options position or close an existing short position to secure profits or mitigate risks.

Downside: Requires an understanding of option premiums, strike prices, and market timing, as miscalculations could lead to unexpected losses.

Example: If you buy a call option on DBS shares for S$2.00 per contract and the price rises to S$3.50, you can sell the contract using a BTC order to realise the profit. Conversely, if the price drops, closing the position early may help limit losses.

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6. Sell To Open (STO) & Sell To Close (STC) – Entering & Exiting Short Positions

Sell to Open (STO) is used when a trader opens a short position by selling an option contract that they do not already own. This strategy is known as selling 'naked' options, which exposes traders to significant risk if the market moves unfavorably. This strategy is common in income-generating trades like covered calls and cash-secured puts, where the trader collects a premium upfront. 

However, selling naked options carries high risk since potential losses can be unlimited if the market moves against the position.

Sell to Close (STC) is the order used to exit a short position that was previously opened. Traders use STC to take profits, cut losses, or avoid unwanted assignments before expiry. Holding short options until expiry can lead to unexpected costs, so closing positions in advance helps manage risk.

Best for: Income strategies like covered calls and cash-secured puts, as well as traders managing short option positions.

Downside: If selling uncovered (naked) options, risk exposure is high, as losses can exceed the premium received.

Example: A trader sells a put option for $2.00 per contract, expecting the stock to stay above the strike price. If correct, the option expires worthless, and they keep the $2.00 premium. 

But if the stock drops significantly, they may have to buy back the option at a loss using an STC order.

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7. Good Till Cancelled (GTC) Orders – Long-Term Orders

A Good Till Cancelled (GTC) order stays open until it is either filled or manually cancelled. Unlike day orders, which expire at market close if unfilled, GTC orders allow traders to set their preferred price and wait for the market to reach it. 

This is useful for those who want to automate their trades without re-entering orders daily. However, if left unattended, these orders can execute under unfavourable conditions due to unexpected price swings.

Best for: Traders who prefer automated execution without the need to place orders every day.

Downside: There is a risk of forgetting about the order, leading to execution at an undesirable price if the market shifts.

Example: You place a GTC limit order to buy an option at $2.50. If the market reaches $2.50 at any point in the coming weeks, the order executes automatically.

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8. Day Orders – Orders That Expire In One Trading Session

A day order remains active only for the trading day it is placed. If it is not filled before the market closes, it automatically expires. 

Traders often use day orders when they expect short-term price movements and do not want their order carried forward to the next trading session. Since these orders do not remain open indefinitely, they reduce the risk of unexpected fills on a later date.

Best for: Short-term traders and those who prefer not to leave pending orders overnight.

Downside: If the market does not reach the specified price within the day, the order is cancelled, requiring traders to re-enter it manually if they still wish to trade.

Example: A trader places a day order to buy an option at $5.00 while the current price is $5.20. If the price drops to $5.00 before market close, the order executes; otherwise, it expires.

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9. One Cancels The Other (OCO) Orders – Dual Orders With Auto-Cancellation

An OCO order links two orders, ensuring that if one is executed, the other is automatically cancelled. This is useful for traders who want to manage risk while aiming for profits without constant market monitoring.

OCO orders are commonly used to set both a stop-loss and a profit target. If the stop-loss triggers, the profit order disappears, preventing unintended trades. If the target price is reached, the stop-loss cancels automatically.

Best for: Traders looking to automate trade exits with predefined profit and loss levels.

Downside: OCO orders can be complex to set up, making them less suitable for beginners who are unfamiliar with conditional orders.

Example: A trader places an OCO order to sell an option at $5.00 for profit while setting a stop-loss at $3.50. If the price drops to $3.50, the stop-loss triggers, cancelling the profit order. If the price rises to $5.00 instead, the stop-loss is removed.

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10. Fill Or Kill (Fok) Orders – All Or Nothing Execution

A Fill or Kill (FOK) order must be executed in full at the specified price immediately, or it gets cancelled. This prevents partial fills, which can cause price inconsistencies in large trades.

FOK orders are useful in low-liquidity markets, ensuring traders either get their full position at the desired price or nothing at all. However, due to strict conditions, these orders often go unfilled.

Best for: Large traders who need full order execution at a set price to maintain consistency.

Downside: There is a risk that the order will not be filled at all, which may lead to missed trading opportunities.

Example: A trader placing a 500-contract order at a specific price might use an FOK order to prevent partial fills, ensuring all 500 contracts are executed at once or not at all.

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Conclusion On Types Of Options Orders

Understanding the different types of options orders is key to executing trades efficiently and managing risk. Whether you're using limit orders for price control, stop orders for protection, or advanced strategies like OCO orders, having the right order type can make a significant difference in your trading success. 

If you're looking to enhance your options trading skills, Next Level Academy offers expert-led mentorship to help you trade smarter. 

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Frequently Asked Questions About Types Of Option Orders

Is A Limit Order Better Than A Market Order For Options?

A limit order is better when price control is important, as it only executes at the specified price or better. However, it may not fill if the market doesn’t reach the limit price.

Should I Use Stop-Loss Orders For Options Trading?

Stop-loss orders can help limit losses, but they may trigger at unfavourable prices in fast-moving markets due to slippage.

A stop-limit order offers more control but carries the risk of not executing if the price doesn’t return to the limit.

Are Day Orders The Default Setting For Most Brokers?

Yes. Most brokers default to day orders, which expire if not executed by the end of the trading session. Traders must manually select GTC if they want their order to remain active.

When Should I Use A Trailing Stop Order For Options?

Trailing stop orders are useful when locking in profits on winning trades. They adjust automatically as the market moves in your favour but remain static if the price reverses.

Is It Possible To Cancel An Options Order After Placing It?

Yes. As long as the order hasn’t been executed. Market orders typically execute very quickly, while limit, stop, and GTC orders can be cancelled before they fill.

How Does An All Or None (AON) Order Differ From Fill Or Kill (FOK)?

An AON order fills only if the entire quantity is available but stays active until filled or cancelled. A FOK order, in contrast, cancels immediately if it can’t be filled in full.