Don's Opening's Journal....

Why do you people keep bugging him about the stocks?

2 banks, 2 brokers, 4 Drug stocks, 2 retailers, Freddie and Fanny, and 3 techs, all big caps.

Let's see, C/BAC/JPM (pick 2) MWD/MER/GS/LEH (pick 2) JNJ/MRK/LLY/PFE/SGP/BMY (pick 4), WMT/HD, FRE/FNM, AOL/MU/TXN (or any other big cap tech stocks).

Do some research people, he pretty much told you what he has.

There is no secret behind stock selection, you pick big caps because the risk of a gap down and another point down within a few prints is literally non-existent. You need a variety of stocks so that you don't get caught in something like a DRG sector wide sell-off.

Basically anything that moves at least a point a day, trades a few million shares a day, with small spreads (I personally won't do this with IBM), is a good candidate for this strategy.

Using smaller caps would increase the risk/reward, but at 2000 shares per position the guy doesn't need anything more than a quarter or so here.

Just do a little bit more research, do you ever play gap-fills? Well this is the systematic version of it.
 
For those who have used this strategy for a while, which do you think would yield the best results- stocks with a high beta or a low beta?

With a low beta, you would think they would be more likely to return to FV, although you would probably get less fills. Higher beta stocks would get you in more positions, but they would be more likely to act on their own, not according to the index. Does this make sense?

Thanks,
Corey
 
Originally posted by markg
Have been reading these posts with interest. Some thoughts:

I question whether a pre-market fair value calculation adds any significant edge when it comes to profitability of opening only trades. Does the specialist make a fair value calculaton before deciding where to open his (her) stock? (Are there any female specialists? I'll bet there are.) While I don't doubt he/she is keenly aware of pre-market futures levels, I presume he'll open his stock primarily based on the orders he sees on his book. Like he always does. If he's the EK specialist, and the globex futures closed 1% above fair value where will he open the stock? What if there's a 500,000 share seller up a dime from EK's close? If the total shares to buy are 75,000 shares, I'll bet he opens the stock under the big offer, shorting a chunk of stock at the same time with the intent of covering lower. Fair value in this case is irrelevant. Am I wrong?

Experience and research tells me that the main advantage to pre-market fair-value calculatons is to gauge how many of your opening only orders you might expect to fill. If futures are way up, it's logical to expect to be hit on a lot of shorts, so it you don't want that you should limit you exposue on the short side in some way.

When I backtested a portfolio of 25 liquid, thick, NYSE stocks over the last eight months, I had no simple way of calculating historical fair value, so I just skipped it. The results were consistently profitable. The only caveat was that on a few days, 20 of the 25 stocks filled. Days with many fills were overwhelmingly profitable, but trade management is an obvious issue.

Bottom line: The big edge to opening-only trading on NYSE stocks is in trading with the the specialist. The specialist opens the stock at a point where he/she will make the most $$. All other considerations--including fair-value--are secondary. Any thoughts?
More...

OK, let's try going back to an old issue of TASC magazine where they backtested the opening strategy without FV calculations (they still did well, but not great). What happens is that you will tend to buy stocks when you shouldn't do anything (negative number for FV), or vice-versa. The FV calculation gives you a better chance for participation on the correct side of the trade. Your point about being with the Specialist is correct, but so many times we get filled on the opposite side as expected.

I am hoping that you know that we don't know or care what the individual historical FV would be...we only use overall market with a slight adjustment for beta (and only this sometimes).

Anyway, as they say " Just Do It" - and you will see. :-)
 
Two fills today, monday.

AIG, long at 72,35, exit at 72,49
(look at the chart after 72,49, ugly!)
WINNER

HON, short at 34, exit at 33,85
WINNER (early exit, huge potential)

Keep the info coming guys, great discussion on this thread.
 
Another point for everyone. The "getting in" is the easy part, it's the "getting out" that can be a problem. I enter around 15 stocks, and hope that I get filled on 3 or 4. I can't accurately trade out of more than that many stocks very well, since trying to read the tape on more than that is pretty tough.

The guys who are trying to automate their exits are having a hard time since they keep getting hit on their stops or take profits too soon. The trailing stop idea seems like a good one, but hasn't worked too well either (to date). So, for now, we are all trying to trade out the "old fashioned way" - by tape reading.
 
I was a bit rushed yesterday, and did not widen out my envelope, ended up taking a loss for a couple of grand....stupid!

Back to normal today, we had .8 envelope, 7 fills of 15, 6 winners ...made about $3,000 - excellent day.

How about you, Edge? Others?
 
Don,

Got 3 fills on 15 today, but scratched all of them. MMM I had 20 cents in and should have gotten out in that vicinity, too slow to move so it went back to open. But kept on going 40 cents above that so my exit in retrospect was ok. The two others should in theory been a looser and a winner, but didn't like that the spoo headed heavily south so I exited. Good day Don, keep it up!
 
BTW, regarding the discussion on automated stops and exits, since I left that approach and instead started reading the tape profits have risen accordingly, seems like you are right on the spot on that one Don. My first attempt included taking profits or losses 25 cents from entry, but didn't feel to comfortable with it, instead winners was converted into loosers, and loosers into even bigger loosers, so reading the tape is more my style. Just wanna get better doing that so I can get closer to Don's profits:)
 
Originally posted by The edge
BTW, regarding the discussion on automated stops and exits, since I left that approach and instead started reading the tape profits have risen accordingly, seems like you are right on the spot on that one Don. My first attempt included taking profits or losses 25 cents from entry, but didn't feel to comfortable with it, instead winners was converted into loosers, and loosers into even bigger loosers, so reading the tape is more my style. Just wanna get better doing that so I can get closer to Don's profits:)
More...

I just wanted to see this posted up again!! :-) Thanks!!
 
>> Back to normal today, we had .8 envelope, 7 fills of 15, 6 >>winners ...made about $3,000 - excellent day.

Don,

Do you normally tweak the envelope depending on the kind of day ? On a day when pre-market futures dictate a weak opening , do you widen the envelope ?

thanks..
 
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