All the strategies outlined in my trading books enter and exit positions at the open. This has prompted a reader question, specifically:
Hey Nick.
The accepted saying in many trading books and articles is that amateurs open the market, but the professionals close it.
I have seen many times a stock open high in the first hour of trading, but gradually retrace throughout the day until 4pm. Emotional inexperienced traders can often pay top dollar at or near the open.
Not sure if you have ever done any testing re buying at the close or open. With Growth Portfolio stocks some subscribers may prefer to buy at the close in order to see if the stock still has upward momentum. -Todd E. A good question and an interesting observation. But like any observation we need to put it to the test to ensure we’re not falling for some type of recency or confirmation bias.
For this test we’ll use a simple momentum strategy on the Russell-1000 universe. Momentum in this case was measured using a 200-day rate of change. No other filters are used.
Why Buy on an Open?
The evidence suggests that buying on open has a slight edge than buying on close. I tested across various strategies in both the Australian and US markets and whilst the edge flipped between the two, it was only ever marginal one way or other.
However, there are two other reasons why I tend to use the open. The first is that, in Australia, the market uses an opening auction. Basically, an algorithm is used to determine the volume on the buy side versus the volume on the sell side, as well as the prices at which they have been placed. This algorithm results in an official ‘auction’ price, which is the price at which the stock opens.
The benefit is twofold; it’s one of the most liquid times of the trading session so slippage is limited, and secondly, it 100% ensures my real time results match the backtest result.
The other reason we employ the open auction is to simplify execution. Signals are generated after the close allowing some 18 hours to place orders for the next session. No screen watching and no special order requirements needed.
The easier you can execute the strategy, the more likely you’ll continue to follow it.
Buying to open is when you purchase a new options contract and assume either a long or short position. Conversely, buying to close is when you purchase an existing options contract that matches a contract you sold. In doing so you offset your existing contract and exit your position.
Investors use a “buy to open” order to initiate a new options contract, betting that the option price will go up. On the other hand, traders who want to exit an existing options contract, thinking the option price will go down, use a “buy to close” order.
If you're looking for the best time to either buy or sell a stock during the trading day it is; During the last 10-15 minutes before market close. Or about an hour after the market opens.
“Buy to close” involves buying back an asset previously sold short to close out a short position, while “buy to open” involves opening a new long position by buying an asset the investor does not currently own.
A sell-to-open order is an options order type in which you sell (also described as write) a new options contract. In contrast, a sell-to-close order is an options order type in which you sell an options contract you already own. Both types of options, calls and puts, are subject to these order types.
If an investor wants to buy a call or a put to profit from a price movement of the underlying security, then that investor must buy to open. Buying to open initiates a long options position that gives a speculator the potential to make an extremely large profit with very low risk.
Sometimes these prices are different. During a regular trading day, the balance between supply and demand fluctuates as the attractiveness of the stock's price increases and decreases. These fluctuations are why closing and opening prices are not always identical.
Buying to open is when you purchase a new options contract and assume either a long or short position. Conversely, buying to close is when you purchase an existing options contract that matches a contract you sold. In doing so you offset your existing contract and exit your position.
“You might get into a stock after hours and benefit from that spike in price, but you're also exposing yourself to risk when the market opens the next morning,” says Campos. If the previous day's good news begins to trend not-so-good the following day, you could be looking at a big dip in price and incur losses.
Selling put options: If an investor has “sold to open” a put option position and the stock price has not fallen below the option's strike price, they can “sell to close” the position by buying back the option at a lower price or letting it expire worthless.
Closing the call option (buying to close) can potentially lock in profits on the options portion of the covered call. Allowing the option to expire worthless is the only way to keep the full premium; selling calls in a later expiration after the calls expire will roll the position if the outlook hasn't changed.
In other words, a stock's open price is a snapshot of its value as of 9:30 a.m. on the most recent day of trading, and its close price is a snapshot of its value as of 4:00 p.m. on the most recent day of trading.
Why Are Covered Calls Bad? Covered calls are not necessarily bad. It is recommended not to write covered calls for stocks with high growth potential. The reason is that the upside gain will be missed because you'll be required to sell at the strike price.
Pre-market and after-hours trading may be beneficial to investors looking to capitalize on business developments or events. However, there are significant liquidity-related risks to consider. It's a good idea to avoid extended hours trading unless you have a well-defined strategy in place.
“You might get into a stock after hours and benefit from that spike in price, but you're also exposing yourself to risk when the market opens the next morning,” says Campos. If the previous day's good news begins to trend not-so-good the following day, you could be looking at a big dip in price and incur losses.
Opendoor Technologies has a consensus rating of Hold which is based on 2 buy ratings, 7 hold ratings and 2 sell ratings. The average price target for Opendoor Technologies is $2.64. This is based on 11 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
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Introduction: My name is Manual Maggio, I am a thankful, tender, adventurous, delightful, fantastic, proud, graceful person who loves writing and wants to share my knowledge and understanding with you.
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