Pegged-to-Stock Orders

Step 1 – Enter a Pegged-to-Stock Buy Order

In this example, we show how to use a pegged-to-stock buy order to continually adjust an option order price by the product of a user-define delta and the change of the option's underlying stock price. First, use TWS's Customize Layout feature to display the Stock Reference Price and Delta columns, then click the Ask price of a call option to create a buy order. Select PEG STK from the Type field, then enter the option starting price, stock reference price and delta as shown above. Enter the delta as an absolute value; this will be used by the order as a percent in this example, we enter 50 for 50%). Transmit the order.

Ensure your option is routed to SMART (or an exchange that supports this order type). Note that this order type is only valid for US Equity options.

Step 2 – Order Transmitted

Your pegged-to-stock order has been submitted. The bid is entered at the midpoint of the option NBBO, or $7.40. As the price of the underlying moves, the price of the option moves by the delta (in this example, 50%) times the change in the stock price.

Step 3 – Price Rises

In this scenario, the underlying stock midpoint moves up by $0.10. The option midpoint rises to $7.45, which is the delta multiplied by the change in underlying price, or 50% x 0.10, or 0.05.

Step 4 – Price Falls

In this scenario, the underlying midpoint falls by $0.10 to $130.69. The option midpoint falls to $7.35, which is the delta multiplied by the change in underlying price, or 50% x (-0.10) or -0.05.