Stop Limit orders outside of regular trading hours

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iPittyTheFool

When earnings are announced, it's not uncommon that the stock price rises or falls by 10, 20 or even 30%. Usally I don't put too much attention on quarterlies, because I take a long term approach. But when I tend to sell a stock anyway I'd like to avoid big losses.

So, in this case I want to sell the stock asap for a still reasonable price, when earnings fall short, but I'd like to keep it otherwise. I figured stop limit orders could solve just that problem.

Example:

WFM reported earnings on May 10. So I set up a stop limit order with a stop price at $35 and a limit price at $34. To execute asap I activated trading outside of regular trading hours (RTH).

When the market closed the price was well above $36. Also the market responded quite well to WFM's report. On the next day the price was above $37.

Nevertheless the order was executed already only one minute after regular trading ended at $35! I do understand that volatility is higher outside the RTHs, but is it really that high?

Is there any fault in my reasoning or is it just a bad idea to set stop orders outside RTHs?
 
I would never set a stop or stop limit order for ETH. You have no protection and can get false moves. If you are that concerned about an event, watch your screen at that time. I have seen 5 point moves on 200 shares on $35 stocks that were not relevant to what happens 2 minutes later.
 
Like Robert said, don't use stop limits in afterhours trading. It is too easy to get picked off. If you are concerned about earnings and don't want to sell your position, use options as a hedge.
 
iPittyTheFool said:
When earnings are announced, it's not uncommon that the stock price rises or falls by 10, 20 or even 30%. Usally I don't put too much attention on quarterlies, because I take a long term approach. But when I tend to sell a stock anyway I'd like to avoid big losses.

So, in this case I want to sell the stock asap for a still reasonable price, when earnings fall short, but I'd like to keep it otherwise. I figured stop limit orders could solve just that problem.

Example:

WFM reported earnings on May 10. So I set up a stop limit order with a stop price at $35 and a limit price at $34. To execute asap I activated trading outside of regular trading hours (RTH).

When the market closed the price was well above $36. Also the market responded quite well to WFM's report. On the next day the price was above $37.

Nevertheless the order was executed already only one minute after regular trading ended at $35! I do understand that volatility is higher outside the RTHs, but is it really that high?

Is there any fault in my reasoning or is it just a bad idea to set stop orders outside RTHs?
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There is very little liquidity in afterhours trading. The spreads are large and there are not many shares available to trade against most of the time. It is a bad idea to set stop orders outside of regular trading hours.

For example, according to my time and sales records for WFM, at the time of a $35.00 print in afterhours trading (16:01:03), the best bid was $35.00 for 100 shares and the best ask was $36.23 for 300 shares. That is a $1.23 spread. You are going to get killed on a stop order in that situation.

By the way, I'm curious why your stop order even triggered. According to my records, there was only one print at $35.00 (presumably your order), so how did your order even trigger? It doesn't seem like it should have triggered, but maybe you need to read up on the details of what would trigger your broker's orders in afterhours trading.
 
I'm always impressed how fast I get a couple of helpful answers in this forum. Thanks to all of you.

You're absolutely right. I will never use stops again in after hours trading. Another lesson learned.

Great idea Benihana. I've never used hedges before, but I will definitely have a try. A simple put should do the job.
 
sprstpd said:
There is very little liquidity in afterhours trading. The spreads are large and there are not many shares available to trade against most of the time. It is a bad idea to set stop orders outside of regular trading hours.

For example, according to my time and sales records for WFM, at the time of a $35.00 print in afterhours trading (16:01:03), the best bid was $35.00 for 100 shares and the best ask was $36.23 for 300 shares. That is a $1.23 spread. You are going to get killed on a stop order in that situation.

By the way, I'm curious why your stop order even triggered. According to my records, there was only one print at $35.00 (presumably your order), so how did your order even trigger? It doesn't seem like it should have triggered, but maybe you need to read up on the details of what would trigger your broker's orders in afterhours trading.
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Why are you surprised that his stop order triggered? I can imagine that if it is set to monitor bid prices, and the bid price drops to below $35.00, his stop loss order got triggered. And in this case apparently got filled at $35.00 as well.
 
Apologies to the OP if hijacking but my question is somewhat relevant and I see you've gotten answer. I've asked this question in another section.

Upon seeing the price movement of stocks in my portfolio, it seems logical to tighten my stops the day before an earnings report. If the earnings are bad and it moves against me, the loss is less than usual, however if it moves in favor no harm is done.

The only drawback obviously is the bears knowing or expecting people to do this and thus driving the price down on that day, only to repurchase before earnings are reported in favor.

I haven't paid much attention to bearish timing during those days, so from your experience, is this a good strategy or should I expect my 2nd suspicion to usually be true those days?
 
HobbyTrading said:
Why are you surprised that his stop order triggered? I can imagine that if it is set to monitor bid prices, and the bid price drops to below $35.00, his stop loss order got triggered. And in this case apparently got filled at $35.00 as well.
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Just because a bid is below a stop order price doesn't mean it triggers a stop there has to be a trade at or below the sell stop price to trigger a stop
 
I have a system that trades only before earnings announcements, and while it does well, you have to watch the risk. Just don't over-leverage your positions - figure about 2/3 to 1/2 the leverage of a typical stock trade.
 
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