Rebuilding of Close Orders When a Leg Becomes Untradeable
1. Overview
When the close logic of a trade covers more than one leg, the close order is held at the broker as a combo. If a leg of that combo is no longer tradeable, or no longer has a valid market price, the broker can no longer price the combo as a whole. The close order is then no longer filled, and the position can no longer be closed through it.
With the approval "Rebuilding of close orders when a leg becomes untradeable", OptionsApp may adjust the close order itself in such a case. How it does so depends on the type of leg involved. The approval is granted in the user portal, in the Approvals area, see Approvals in the User Portal.
The typical case is a long leg far out of the money that has become nearly worthless shortly before expiration: the broker no longer quotes a bid for that leg, which makes the combo unsellable.
2. Requirements
- The approval has been granted in the user portal.
- The trade has a close logic that covers more than one leg, a stop loss or a profit target at combo level for instance.
- What governs the trade is the state of the approval when the trade was opened. An approval granted or withdrawn later affects newly opened trades only.
3. Case 1: A Long Leg Is Removed from the Close Order
The affected leg is removed from the order, and the close logic is applied to the remaining legs. The price originally set for the full combo is carried over unchanged. OptionsApp does not determine a price of its own.
Before rebuilding, it is checked whether that price would trigger immediately against the remaining legs, or whether this cannot be assessed for lack of market data. In both cases the rebuild does not take place, and the existing close orders stay at the market unchanged. If no close order is held at the broker at that time, OptionsApp keeps monitoring the position and retries the rebuild later.
The rebuild is reported with the message INFO 058: Close order rebuilt. It names the legs that were excluded and points out that stop and target prices have been carried over unchanged. If the value of an excluded leg recovers, the leg belongs to the close order again.
If no market data at all is available for a leg, that is neither bid nor mark nor ask, the leg stays in the close order. OptionsApp reports this with WARNING 057: No market data - close-order leg kept. A leg without a tradable quote can prevent the close order from being filled; the position should then be checked in the TWS.
4. Case 2: A Nearly Worthless Short Leg Is Bought Back
A short leg can be bought back at any time. If it is close to worthless, however, the broker can no longer determine a price for the combo as a whole, and the close order is no longer filled.
A short leg cannot simply be removed from the order: the short position would stay open and carries unlimited risk. OptionsApp therefore buys it back separately first and then restores the original close. The buy-back is executed at the market price applicable at the time.
This happens only as long as no available price source shows a value for that leg above the threshold for nearly worthless legs. This threshold is defined in OptionsApp and has nothing to do with the stop loss or the profit target of the trade. If a source shows more, the leg does not count as worthless, the buy-back does not take place, and the position stays unchanged.
5. What OptionsApp Does Not Do
- It does not determine a price of its own. The price of the original order is carried over.
- It does not rebuild when the carried-over price would trigger immediately against the remaining legs, or when this cannot be assessed for lack of market data.
- It does not remove a short leg from a close order.
- It does not buy back a short leg for which a price source shows a value above the threshold for nearly worthless legs (see Case 2). This threshold is independent of the stop loss.
- It gives no assurance that the position will be closed. In rare cases, for example due to faulty market data from the broker, a rebuild or a buy-back can lead to unexpected fills and financial disadvantages.
6. What Happens Without This Approval
Without this approval, trades whose close logic covers more than one leg are not opened. This shows as early as saving the trade template: the setting remains selectable, but the template cannot be saved, and the message names the missing approval.
Running trades are not affected. For them, the state that applied when they were opened continues to govern.
7. Documentation in the Trade Log
Every rebuild and every buy-back is documented in the trade log, with the original order, the new order, the trigger and the market data at the time. Every case in which a rebuild or a buy-back does not take place is documented as well.
8. Wording of the Confirmation
In the approval dialog, the confirmation is headed "Confirmation required:". The text of the checkbox reads:
I authorize OptionsApp to adjust close orders on its own, including removing long legs and buying back short positions separately. I am aware that this can lead to unexpected fills and losses, particularly in the event of faulty market data.
The confirmation is stored with date, time, text version, and language.