Open Orders Please Help!!

J

jpomerenke

hi
Ive been learning the OO technique and i have read thru all of "Dons Openings" but there are a few holes that i just cant find here..

first of all:
How do you find the fair value percent?? ...at programtrading .com it says that fridays fair value was .85...so how do i put that into percent compared to the S&P...or is that the percen??

Whats a good envolope to start with...1% on both sides?

and what exactly is the beta of a stock and how do i find this??

i think this is all the questions i have...they prolly all are easy questions, but thanks in advance
cheers
joey:D
 
not sure how accurate yahoo finance
beta numbers are but you can find beta
numbers for any equity name
under its profile
 
beta is a relative measure that sort of combines volatility with correlation of price movement to an index. Beta can be a positive or a negative number.

The beta of the index is set to 1. If a stock has a beta of 1.0, then it is expected to move pretty much in lock step with the index.

If the beta of a stock is much higher than 1, then it should move in the same direction as the index, and it is more volatile than the index.

Betas in the 0-.99 range mean that the stock is either not very correlated with the index, or that it isn't very volatile.

Negative beta stocks actually tend to move in the opposite direction to the index. High negative beta stocks move opposite to the index and quickly.

In my software, beta is calculated based on the S&P 500.
 
Well it seems the experienced traders using this strategy are AWOL or just ignoring the post. So I'll have a go at explaining it in detail. But please note that I am not an expert and am only doing this with the selfish motivation of learning!

Here we go...

1]start off with FV of the SPX
2]apply it to the stock to get its "FV"
3]apply an envelope to that (usually around 1%)
4]enter buy/sell orders

I'll illustrate what I mean by using an example:

[data is fictitious]

GM closed yesterday at $61
Beta of GM is 1.13
FV is $1.25
SP cash closed yesterday at 1160.70
SP future is at 1166.50
Envelope is set to 1%

1] FV=$1.25 and to get % we calculate as follows:

FV+SP cash close (yesterday) = 1161.95

SP future - SP cash = change

1166.50 - 1161.95 = 4.55

4.55 divided by 1160.70 = 0.0039 or 0.39%

So the SPX is set to open +0.39%

2] GM closed at $61 with a Beta of 1.13 so:

0.39% x 1.13
= 0.4407% <-- % change we expect to filter to GM

0.4407% x $61
= $0.268827 <-- $ change filtered to GM stock

Therefore the FV of GM is $61.268827

3] Apply the envelope of 1% to the FV of GM

1% envelope = 0.005 on each side so:

0.005 x 61.268827 = 0.3063

4] Enter the buy/sell orders

We enter LOO not MOO!! as follows:

buy $60.6937

sell $61.3063



If you think there is anything wrong with the above calculations or logic, let us know. Otherwise, that is what I believe to be the basics of the strategy.

There are many nuances as this is NOT a system but really an art. I think newbies should be strongly urged against playing the OO unless they understand this. The tweaks that can be added are:

1] instead of Beta use ATR
2] use large caps, or mid caps or a mix
3] how and when to vary the envelope %
4] the mix of sectors/industries to use
5] which stocks to flat outright, NOT use
6] how to manage the trade and exit once filled

I think that a person can only become adept at the list above through experimentation. Just like any other trading strategy a 'tuition' has to be paid so that you can reach the summit.
 
The whole purpose of OO orders is to trade on the same side as the Specialist every morning. When a stock opens high or low, due to excessive buying or selling, the Specialist must "accomodate" the order (not partcipate on the same side). Since the Specialist will make $$ most of the time, we do too, very simple.

As far as the calculations, they're pretty basic, and have been displayed many times on the prior threads. The "geting out" is more difficult, and we have discussed strategies for that here as well (slingshot and shake out).

The rest is simply tape reading.

Don
 
Originally posted by Babak
Gee Don, could you be a little bit more vague? Thanks.
More...

I'm not trying to be vague at all. Check the "Don's Opening parts 1 and 2"...I'm sure you'll find more details of the strategy. Basically, we determine the "fair opening price" based on the current futures pricing. Then we "envelope" that price with a buy and a sell order. If the stock opens above our selling price, we sold it at that higher price (With the NYSE Specialist), if it opens below our bid, we bought it With the NYSE Specialist.

I personally place about 20 buys and 20 sells, trying to get filled on 3 or 4 every day. I adjust the "envelope" based on how high or low we are going to open the market based on the prior day's close.

Today I got filled on 13 of 19, which kept me pretty busy. I mad e money on 9 of 13, making about $1,020.

We close based on all the same factors we use for trading all day long (basic tape reading).

Don
 
Don, I really don't want to enter into an argument with the master of obfuscation. But it seems inevitable (sigh).

jpomerenke started this thread with specific questions regarding the opening order strategy (a strategy which you introduced to this board via your OO thread).

Did you read his post?

His questions were really simple and I'm sure that with the vast knowledge that you possess about the market and the OO strategy in particular, it would have only taken a few minutes to answer them. Yet you and others who are familiar with the OO strategy ignored his posted question. I then replied to him with an attempt at explaining the OO strategy (to my imperfect understanding of it).

In my post, I again asked others to reply and comment on my answer to make sure that it was correct.

Did you read my post?

Again, you and others didn't respond to the thread. The exception being a few pm's I got pointing out a simple error in my original post. Something which proves you didn't even bother to read my post (as the simple error would have been obvious to your trained and expert eyes).

Then I posted on your OO thread and asked that you or others please reply to jpomerenke and my posts. In reply, you posted a general overview of the OO strategy and how it is 'based on being on the same side of the specialist'.

This is not what we were talking about. The originator of the thread and myself were talking about specifics of the strategy.

Then you posted some more info (20buy/20 sells, trying to get 3-4 filled, etc.) which had nothing to do with the thread. For reasons only known to you, you were engaged in a totally different conversation than that on the thread.

For whatever reason, you have decided to release info on OO in a Chinese-torture drip method. Hey! You don't owe us anything and don't have to give us your 'secrets' ($$ reserve those for your seminars $$) but for the love of all Holy and Sacred, when you reply in sweeping generalities to a specific question, don't turn around and claim that you were being specific !

My post was/is the only one on ET (atleast to my knowledge) that attempts to include the whole strategy in one post. Not trying to posture by saying that, in fact, the only reason I replied was to learn more about this strategy (damn! I'm selfish) and point out that this is not a printing press as you constantly imply but a discretionary trading style, much like, say playing break outs, which requires a high level of trading skill and experience.
 
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