How to Use Walk Limit Orders for Options Trading

Prices change quickly in the options market, which can make it tough for traders to get the price they want. Traders often place and cancel multiple limit orders, which set a maximum price for buying and a minimum for selling, to try to get filled.

There's an alternative: Schwab's proprietary Walk Limit^® order type allows traders to place one order that automatically adjusts the price of the order for the trader.

Walk Limit can save investors time and can potentially fill an options order more efficiently than placing multiple orders.

A Walk Limit order automates the process of placing, canceling, and replacing an options order, whether you're buying or selling an option or option spread.

For example, let's say a trader would like to use a Walk Limit order to buy an option or an option spread. This can be done simply by choosing a valid start price that is equal to or greater than the current bid and an end price that is less than or equal to the ask price. The Walk Limit order will be entered at the start price, sit for the time specified by client input (in seconds), and if not filled, will automatically be cancelled and replaced at the next price, which in the case of a buy would be a price higher than the starting price. The process will repeat until the order is filled or reaches the end price designated in the order by the trader.

This order type can be used to make options trading more efficient by allowing the order to be "walked" between the bid and ask prices without manual updates by the trader. Traders who are eyeing potential opportunities in options strategies with wide bid/ask spreads might find the Walk Limit order type particularly useful. Rather than placing an order at the bid price (to buy) and manually updating the order up to the ask price, traders can use the Walk Limit automation to do the work for them.

The Walk Limit order type is especially useful for options trades with multiple components that are difficult to manage, like two- to four-leg spread trading. We'll go over that in a moment, but we'll first discuss how Walk Limit orders can be used for single-leg options to get a better idea of how they work.

On a single-leg options trade, which is an order to buy or sell one call or put position, a Walk Limit order to buy will populate the current bid as the start price and current ask as the end price. The trader can customize the start and end price between the current bid/ask spread. After submitting the order, the walking process will begin, starting with a limit order at the start price. If the order does not fill, it will incrementally move toward the end price based on the time and price change parameters a trader chooses. Sell orders default to start at the ask price and incrementally change downward to the end price, generally the bid, or a price the trader selects.

For example, an option might be trading at a bid of $4.10 and an ask of $4.15. Let's say a trader enters a Walk Limit buy order at $4.10 and wants it to move up by $0.01 every five seconds up to an end-price maximum of $4.15. After the order is placed at $4.10, it'll remain active for five seconds, and if it isn't filled, it'll be replaced with an order for $4.11. This process will continue until it is filled or until it reaches the end price—in this case, $4.15. If the order is not filled by the time it reaches $4.15, it'll remain active at a buy limit price of $4.15 until it's filled, is cancelled by the client, or expires at the end of the trading session.

If the trader tried to enter an order without the Walk Limit order, it would be more complex. Let's say the trader entered a limit order to buy at $4.13. After just a few seconds, the bid price changed to $4.14, and the ask moved to $4.19. The trader either must cancel the order and re-enter it to reflect the new price or wait for the market bid price to drop below $4.13.

If the trader had initially placed a Walk Limit order, the order would automatically increase by $0.01 every five seconds until whatever end price they set—maybe $4.15 if it had been placed when the spread was $4.10 to $4.15. Instead of canceling and re-entering the order, the trader may have gotten partial or full fills as the price moved.

Walk Limit can be particularly useful in multi-leg options strategies. If a trader is placing two or more option legs as part of a single trade, the Walk Limit order makes it easy to manage price changes.

For example, let's say a trader plans to enter a long straddle, which is a position involving buying both a call option and a put option on the same underlying security with the same strike price and the same expiration date.

Let's assume for the straddle that the call price has a bid/ask spread of $3.20 to $3.30, and the put has a spread from $0.36 to $0.38. That means the straddle has a net bid price of $3.56 ($3.20 plus $0.36) and an ask price of $3.68 ($3.30 plus $0.38). This spread has a fairly large bid/ask spread ($0.12), and therefore, a Walk Limit on the spread would automate the cancel/replace process to get the order filled. This saves time.

To place a Walk Limit order on Schwab.com, log in and select the Trade tab. Select Options and enter the symbol for whatever underlying security you want to trade. Select your trading strategy and fill in the criteria for whatever type of options trade you plan to pursue. Then, under Order type, you'll find Walk limit – debit, which lets you buy options, and Walk limit – credit, which is for selling options. Next, select your criteria, including start price, end price, price increment, and time increment. Once your trade is ready, select Review Order. If everything looks good, select Place Order.

The Schwab.com screenshot below shows the order for a client looking to buy three standard contracts, or 300 options. The order will start working at $2.95, and the price will be raised by $0.02 every four seconds until the order is filled or reaches $2.98. Once the price hits $2.98, the order will continue working at that price until the end of the day.

If you want to use a Walk Limit order on the thinkorswim^® desktop platform, log in and select the Trade tab. Choose an underlying security, and select the contract you want to trade. Then right-click to choose buy or sell. This will open the Order Entry Tools panel. From here, you'll see the Order drop-down menu. Click it and select Walk Limit. Then enter the starting price, limit price, price increment, and time increment. The thinkorswim screenshot below shows an order to sell 10 WXYZ puts at an entry price of $17.20. The price will change by 2 cents every two seconds until it reaches the limit of $17.10, with a price increment of 2 cents and a time increment of two seconds. Once the order hits $17.10, it will continue until it's filled or at the end of the trading day, whichever comes first.

The Walk Limit order can be helpful for single and multi-leg options trades involving wide bid/ask spreads. Traders who are looking to save time, and who want to avoid the ongoing effort it requires to cancel and replace an order, can use Walk Limit orders to do the work for them.

Remember, Walk Limit orders aren't ideal for all options trading situations—including those with small bid/ask spreads, or options that are moving in one direction or another rapidly.