Quote from tito:
Hey Don,
I plan to start trading opening orders next week, but would just want to make sure I am doing the calculations right.
If futures indicate that they are going to open -.6% from yesterday's close and I am trading a stock which closed the previous day at $50, do I enter an opening buy order at $49.70 ($50 - .6%) less maybe .20 (adjustment for slingshot) to come up with a limit opening buy order at $49.50?
Pls. advise if I am doing this correctly and thanks very much in advance for your help and contributions to this thread.
OK, take the spot price, add current day fair value (
www.stocktrading.com/Tradinginfo.htm will help), and you get a number. Now check where the futures are trading (eMini's are trading), and determine the difference between your adjusted FV number and the actual futures number. Divide that by the spot price to ge an up or down opening percentage. Apply that number to previous day's close. Then, depending on how far the market is opening up or down, determine your envelope (between .2 and .8 generally). The envelope is the variable.
Using today (Tuesday) as an example (approx).
Previous SPX (spot close) = 1445.90
Today's FV = 10.72
Total (est. Parity) 1456.62
Emini's trading approx 1467.75
Opening up from FV 11.13
11.13 divided by 1445.90 = .007
.007 times (stock) AFL close 59.52 = .41 making predicted opening price of 59.93.
I put a . 4 sell envelope which gave me a 60.14 sell order. Stock opened at 60.23, I bought it back between 60.13-60.18 to make $160.00 this morning on Aflac.
(Don't get too bogged down in the number, focus on the concept of fading gaps).
This morning I ended up $320.
This morning, no buy orders.
Good luck!
Don
