Technological advancement has led to trading efficiency in the form of automated order types. This week, we discuss good till triggered (GTT) and aftermarket orders (AMO) in relation to derivatives trading.
Spot vs derivatives
Futures and options have a finite life. While you may choose to hold futures until expiry, most long positions in options are closed well before expiry. This is because options lose value with each passing day (time decay). In contrast, you can hold positions in underlying stocks for as long as you want. This means the type of orders you use for trading futures and options are not necessarily the ones you use for initiating positions in stocks.
It is typical of traders to place AMO and GTT orders when trading an underlying. You must be mindful of the outcomes of placing such orders when trading derivatives, especially options. Why? Suppose a development happens after the market closes that eases the political tension in West Asia, and you expect the Nifty 50 Index to move up the next day. If you place an AMO to buy Nifty calls the next day, which strike will you choose?
This is important because you are trading European options, which can be exercised only at expiry. So, you must sell to close your long positions before expiry. But finding a counterparty to buy at the last traded price is dependent on the moneyness of the option. The more in-the-money (ITM) an option is, the less the option’s liquidity. The upshot? You should buy out-of-the-money (OTM) options that become slightly ITM when the underlying moves as you expected. But when you place an AMO it is difficult to forecast how much the Nifty 50 Index will move the next day at opening. If you underestimate the move, your order may not be filled if you place a limit order, or you may end up buying an ITM option because the strike you chose was not far from the previous day’s closing price. If you overestimate the movement in the index, you may place an order for far away OTM strike, which may not be optimal.
GTT orders may be useful to close your futures positions. Once the order initiating your long position is confirmed, you may want to place a sell order with your target price. You must be mindful of closing single-stock futures positions before expiry if they do not hit your price target. Otherwise, you will have to take delivery of the underlying.
Optional reading
GTT sell orders may be risky for options. It is not uncommon to forget our positions once we place a GTT (sell) order; with options, that may lead to loss from time decay. It is best to continually monitor your position. An optimal way to do so is to place a regular day order; you can decide by end of day whether to cut your losses, take profits or carry the position.
(The author offers training programmes for individuals to manage their personal investments)
Published on July 5, 2025
