One-Triggers-the-Other Orders (OTO)

Definition

The term One-Triggers-the-Other refers to instructions sent to a broker that consist of a primary order and a secondary order, which becomes active only if the primary order is executed.  One-Triggers-the-Other orders can save a trader time, since they can pair together an order to purchase stock at a certain price and sell it at another.

Explanation

One-Triggers-the-Other (OTO) orders are one of several types of contingent orders, which consist of a primary and one or more secondary orders.  When an OTO order is place, the primary order is active, while the secondary order is inactive.  If the primary order executes, the secondary order automatically becomes active.   

Typically, investors will use OTO orders to pair together buy and sell instructions.  As is the case with other types of orders, OTOs can be coupled with Time-in-Force instructions which specify the duration of the order.  If used with Time-in-Force instructions, when the primary order expires then so does the secondary order.  Also, if the trader decides to cancel their primary order, the secondary order is automatically cancelled too.

Example

Below are several examples demonstrating how the One-Triggers-the-Other order type can be used effectively by traders:

  • Covered Call:  the primary order is to purchase a stock at a limit price, while the secondary order would be to write a covered call against the same securities.
  • Put Spread:  the primary order is to buy a put at a specific strike price, while the secondary order is to write a put at a lower strike price.

Related Terms

All-or-NoneFill-or-Kill, Good-Til-Canceled, Immediate-or-CancelNational Best Offer, National Best Bid, market order, limit order, day orderOne-Cancels-All, One-Cancels-the-Other, Good-Til-Date, At-the-Opening