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Discretionary Order Handling for US Options

The Discretionary order attribute gives you the opportunity to potentially both provide liquidity and take liquidity with a single order. The order is submitted at a user-defined limit price along with a specified discretionary amount, for example $3.20 with 3 cents discretion. If the submitted order is non-marketable, it rests on the book and provides liquidity. The discretionary amount allows your order to compete in price improvement auctions as well as take liquidity when possible.

For options orders where the specified limit price is set between price levels, you can tell TWS to create a discretionary order by checking the Submit orders for nickel/dime priced options with price between price levels as Discretionary checkbox on the Orders page of Global Configuration.

Note that if your option order is non-marketable, you are providing liquidity and therefore your order has the potential to generate a rebate. By submitting a discretionary order, you may end up either:

  • Providing liquidity to a price improvement auction, which also often results in an exchange fee.
  • Taking liquidity, which often results in an exchange fee.

When you elect to have discretionary orders created using the checkbox in Global Configuration, a discretionary amount will be determined based on the entered limit price, whether it's a buy or sell, and the market-specified price increment. If the limit price falls between the option's normal price levels, the order will be submitted as Discretionary, using a Limit Price of the next lower (for buy orders) or higher (for sell orders) nickel or dime price level increment, and a Discretionary Amount of the distance between your specified Limit Price and the nickel or dime price.

Price Levels for Most US Options

Normal price levels for most options (those that do not participate in the Penny Pilot Program):

  • For options priced under USD 3.00 - Nickel increments (0.05)
  • For options priced over USD 3.00 - Dime increments (0.10)

For example:

If Limit price = 2.43

Buy order: Round down to 2.40 with a discretionary amount of 0.03

Sell order: Round up to 2.45 with a discretionary amount of 0.02

If Limit price = 3.23

Buy order: Round down to 3.20 with a discretionary amount of 0.03

Sell order: Round up to 3.30 with a discretionary amount of 0.07

Price Levels for Penny Pilot Program US Options

A limited number of options participate in the Penny Pilot Program. Normal price levels for options that participate in the Penny Pilot Program are:

  • For options priced under USD 3.00 - Penny increments (0.01)
  • For options priced over USD 3.00 - Nickel increments (0.05)

For example::

If Limit price = 2.43

Buy order: Order is submitted at the limit price with no discretionary amount.

Sell order: Order is submitted at the limit price with no discretionary amount.

If Limit price = 3.23

Buy order: Round down to 3.20 with a discretionary amount of 0.03

Sell order: Round up to 3.25 with a discretionary amount of 0.02

For more information on exchange fees, see the Options product page.