Buying To Cover And Protecting Profits from Short Sell

Question

I sold covered call options, and I would like to buy to cover when the market opens on Monday. For this particular instrument, trading volume is a bit thin, and I would like to "hide" my orders so they are visible only when they are triggered by the market price.

Since I am buying to cover, I would love to get the lowest price available and lock in my profit. With volume very thin, the price is quite volatile.

I tried setting "STOP-LIMIT" buy to cover, with a $20 stop below the current price, and an Limit with $10 below the current price. TD Ameritrade app did not place the trade, and I received a notice : The stop price must be above the current bid and last for buy stop orders and below the current ask and last for sell stop orders. It seems as if STOP-LIMIT for buy order works only to get into a position for long, and is not suitable for closing out open short positions.

How do I set a hidden order to buy BELOW the current price ? I do not want to set a STOP-MARKET order. Given how volatile the option is, it could easily fill above my sell-price once triggered if there is not limit set.

Please advise :)

Answer 1

Fidelity is rejecting your order because you are using the wrong type of order.

A buy stop limit is used to buy if price hits a specific point. It specifies the highest price you're willing to pay. The stop is above the market price of the stock and the limit is the highest price that you're willing to pay.

A sell stop limit is the opposite. It's an order to sell when price falls up to a specific price (the stop) which then activates the limit order indicating the lowest price that you are willing to accept.

Keep it simple. Just place a limit order to buy (to close) your short call at the price you desire. If it trades there, you'll get your fill.