Chapter 04 · Section 4.1

Limit Orders - price fluctuations

A floor broker received this limit order:

Buy 3 Puts Citicp July 55 at 6 3/8 or better

The put option trades at 6 1/4. However, the floor broker has received a hot tip and thinks the price may drop to 5 1/8 later in the day. Should the floor trader wait for the price to drop and buy the put options at a lower price?

• a) no
  Yes. The floor broker must act immediately because the market price is at least as good as the limit price. If, despite his expectations, the price rises above 6 3/8, the broker may be held responsible for not executing the order. Continue
  b) yes

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