Don's Opening's Journal....

Originally posted by raviraman
If (S&P Futures is 5.2 Points above fair value)

then how do you calculate the % by which the market would open higher. Is it 5.2/1160 (S&P cash ) ?

Thanks,

Ravi
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Simply convert the points up to a percentage and use that for the calculation. Up 1%, 3%, whatever.

:)
 
I think The Edge did a pretty good job of explaining what he does, Don seems to enjoy being cryptic and secretive. As I understand it, what they do is look where the futures are trading before the open and derive a percentage gain or loss from yesterday's close, then apply the percentage to the stocks to derive a "fair value". They then use an envelope of + or - .5 in Edge's case to sell short or buy, ie, if the stock opens at >FV+.5 he shorts it. Forget the "fair value" term used by CNBC. They use it in a backward and confusing sense. The actual fair value is the amount extra an arb would pay for the futures versus the cash index, due to the fact that the cash has a financing cost and the futures do not.
 
Utilizing this strategy requires the ability to enter market-on-open orders for listed stock. Does anyone know of a retail firm that allows customers to do this?
 
Still am holding my 250 share short position on KSS. Shorted original 1000 at 70.40. Covered 500 at 69.99 covered 250 at 69.74 and still holding on left over short of 250 KSS overnight.

By the way I am Short HC (Hanover compressor) from 24.5. This is a pure fundamental play long term short play and I probably will be concentrating allot of my time on fundamental analysis. Maybe 80% fundamental and 20% technical this year.
 
Nice trading shortee, i shorted a bunch @ 70.34 but covered all @69.91. wish i hadn't...:-D you should do well, what it close @69.01?? NICE! $$$$$$$$$$$$$ HAHAHAHA!
 
Kinda of wish I kept the full 1000 at 70.4 but I'm glad I coverd. I am upset I didn't short some more when it spiked in late morning to 70.39 then went straight down from there.
 
Talking about Kohls. It seems every time I go in this store I am the only one shopping . No help and no customers but they are growing like leaps and bounds go figure. Maybe it's the area I live in. I will be investigating along with my accountant buddy on how they report their numbers. Any other good accountants out their if you would be interested in helping me with my research on this and a couple of other companies let me know.
 
shortee, you are playing it perfectly...covering at intervals and locking in your profits (dont you wish they all could be like this :-)...only way to play it. "coulda, woulda, shoulda" has no meaning or validity...play the probabilities only...i had to leave & quit trading @noonish so i covered all..

i hear you, i feel the same way about the BIG K. Every time i shop there i wish i was in Walmart...lol.
 
Originally posted by AAAintheBeltway
I think The Edge did a pretty good job of explaining what he does, Don seems to enjoy being cryptic and secretive. As I understand it, what they do is look where the futures are trading before the open and derive a percentage gain or loss from yesterday's close, then apply the percentage to the stocks to derive a "fair value". They then use an envelope of + or - .5 in Edge's case to sell short or buy, ie, if the stock opens at >FV+.5 he shorts it. Forget the "fair value" term used by CNBC. They use it in a backward and confusing sense. The actual fair value is the amount extra an arb would pay for the futures versus the cash index, due to the fact that the cash has a financing cost and the futures do not.
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Yep that covers it pretty close. Except I use a + or - 2% .
.5% is too close and I prefer having fewer fills but a higher % of winners. or if you meant to say 5% than you will have almost no fills as the specialist to inform the public before gapping a certain %. THERE MUST BE NO NEWS FOR THE STOCK. Jonathan Kirkland explained this to me in Echo's seminar. I understood the concept and have to say it was rather impressive to hear. I am still playing around with it but would like to thank Don for starting this thread.
 
I might do it incorrectly but here's an example of the way I play the FV.

SP cash closed yesterday at 1160.7
The SP futures (which close 15 min. before the market opens) closed at 1166.5 this morning.
I use the FV from this site http://www.programtrading.com/buysell.htm

This morning FV was 1.25

I add 1.25 and SP cash of 1160.7 = 1161.95.
Then I find the difference between futures and cash (with the FV number added to the cash) 1166.5-1161.95=4.55 (note that today it's a positive number.)
Then I find the percentage of change this difference is from the SP close- eg: 4.55/1160.7=.0039.

Okay, .0039 is my number.
I add/subtract that % from a given stock's previous close (today I add since it's positive, the overnight futures closed higher than cash/fv--the market will open "up".)

I'll use TXN as an example. It closed yesterday @ 29.00.
So, 29.00x.00392=.113 or about 11 cents.
I add .11 to 29.00 and, to me, TXN should open about 29.11 to be level with the world.
If TXN opens a distance from this number, plus or minus, that seems too far I'll take the trade. This is my envelope. Half a percent is common. Some traders will use more, others will use less.

So now, 29.11x.005=.145 or about 15 cents.
29.11-.15= 28.96 or less and I buy.
29.11+.15=29.26 or more and I short.

TXN opened @ 29.75. It was a short according to this method.

I use this method even though I trade retail. I sometimes get better fills than "opening only" orders because I can come in shortly after the open with discretion. I've noticed that some specialists like to put a little shake on the stock before it moves the right direction (I figure they're adding to their short/long but I dunno) TXN traded as high as .84 before dropping some.

Warning: this is my cobbled together version of some unclear info that I received and it may not be quite right. Use at your own risk.:p

If I'm off on this I'd really appreciate any help.

Mike
 
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