Rookie Question

A

Abbadon21

I have been wanting to trade options for quite a while, however I won't try until I can be consistently successful paper trading. Note: I trade opens in my paper trades.

While paper trading, I've noticed several times that the open price for an option will change during the day.

I get my data from CBOE, and today it first showed that the SPY option SFBNB opened at a little over $3.00, then when I checked again at about 9pm it said it opened at $1.69.

How can it change like that? How do I know which is accurate (closest to what I would have got in an actual trade)?

Thanks in advance...
 
Quote from Abbadon21:

Note: I trade opens in my paper trades.


[...]

How do I know which is accurate (closest to what I would have got in an actual trade)?
More...

Neither is an indication of what fill you would have gotten in an actual trade. You would never trade options with a market-on-open order (unless you were some sort of philanthropist or crazy person), you would trade at some time during the day.

If you want a realistic approximation of trading, choose a time during the trading day when you think you would have pulled the trigger, and use the ask (buy) or bid (sell) as your price.
 
That complicates things...

I've developed a pretty good system for predicting the movement of the S&P 500. The catch is that it predicts open movement.

Let me explain with an example...

It is now 10:00pm on Wednesday. My "system" predicts that the S&P 500 will open higher on Friday than it will on Thursday.

So my system is saying that a market open buy of SPY on Thursday could then be sold for a profit when SPY opens Friday.

How could I best use this information?

If you were sure the S&P 500 would open higher on Friday than it does on Thursday, how would you make the maximum profit off that knowledge?

Note: My that's just an example and not the real prediction.

Thanks...
 
No offense but you might want to consider things like the employment report coming out Friday. Events like that tend to influence the openings.
 
Quote from Abbadon21:

If you were sure the S&P 500 would open higher on Friday than it does on Thursday, how would you make the maximum profit off that knowledge?
More...

I suppose I'd try to buy the index intra-day on Thursday below the open, and sell it on Friday as early in the morning as I could.

Someone else here probably has some more exotic strategies.

Quote from xflat2186:

No offense but you might want to consider things like the employment report coming out Friday. Events like that tend to influence the openings.
More...

Wait, it's possible for things to change after you've already done your analysis and research?
 
Hi Abbadon21,

It's much easier for some, perhaps most here to check out that SPY option if you give the strike and expiration rather than the symbol.

So you are asking about the Feb. 132P , eh?

Is that the last sale or open ? I only see last sale at CBOE option chains.

Since the quotes may be delayed be sure that you are not looking at yesterday's prices at the open.

SPY options will usually track the underlying. If you can get a price fix you could use delta to approximate entry prices. This may or may not be accurate - and you would have to know how extrapolate delta or use gamma to measure approx. option price changes over larger SPY moves. Only an approx. at best.

The best way to test is to use live quotes from a broker or some other data source.
 
Quote from commiebat:

I suppose I'd try to buy the index intra-day on Thursday below the open, and sell it on Friday as early in the morning as I could.
More...

So you're saying you would buy the stock SPY and not an option of SPY? I've paper traded that and it worked well with my system. But gains were slow, so I started looking into options for more leverage.

Xflat - My system somewhat takes those type of things into account as far as the S&P 500 goes, but it hasn't transfered all that well to options. I've noticed options can open very high or low and then quickly stabilize to a more reasonable price.

DonnaP - That sounds like the correct contract. I will just say the strike and month from now on.

In my original post I was asking about how the open price changed during the same day. I first checked it at about noon (eastern) then again at 9pm and it gave different prices.

I got the open price both times from here: http://delayedquotes.cboe.com/optio...&ID_NOTATION=20330197&FROM_OPTIONS_CHAIN=true

I have since learned and had suspected before that I probably shouldn't be paper trading the options open price. Now I'm trying to figure out a better way to trade based on the predictions of my system.

I'm going to look into paper trading with a broker... I've looked at both ThinkorSwim and Interactive Brokers, and I'm thinking I'll sign up with ThinkorSwim and try their paper trading application until I'm ready to use real money.

My main question now is how should I trade the predictions of my system for maximum profit.

Thanks to everyone for helping, I know I'm still pretty ignorant about options.
 
Quote from Abbadon21:

...My main question now is how should I trade the predictions of my system for maximum profit...
More...

Well, it's your system so you should be the one answering this question!
 
Quote from MTE:

Well, it's your system so you should be the one answering this question!
More...

A better question would be...

If it's Wednesday night and you're sure the S&P 500 will open higher on Friday than it does on Thursday, how would you make the maximum profit off that knowledge?
 
Quote from Abbadon21:



Xflat - My system somewhat takes those type of things into account as far as the S&P 500 goes, but it hasn't transfered all that well to options. I've noticed options can open very high or low and then quickly stabilize to a more reasonable price.


.
More...

No offense but there is no way to take those things into account, this mornings opening is a perfect example.

Options are deivative products, their price is dependent on the price of the underlying vehicle and the markets are very efficient, granted the are other variables such as implied volatility. Choose higher delta or close to 1.00 delta options if you just want the leverage and not the vega risk.
 
You must log in or register to reply here.
Back
Top