When do options start trading in the morning
Day trading is speculation in securitiesspecifically buying and selling financial instruments within the same trading day. Strictly, day trading is trading only within a day, such that all positions are closed when do options start trading in the morning the market closes for the trading day.
Many traders may not be so strict or may have day trading as one component of an overall strategy. Traders who participate in day trading are called day traders. Traders who trade in this capacity with the motive of profit are therefore speculators. The methods of quick trading contrast with the long-term trades underlying buy and hold and value investing strategies.
Some of the more commonly day-traded financial instruments are stocksoptionscurrenciesand a host of futures contracts such as equity index futures, interest rate futures, currency futures and commodity futures. Day trading was once an activity that when do options start trading in the morning exclusive to financial firms and professional speculators.
Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. However, with the advent of electronic trading and margin tradingday trading is available to private individuals. Some day traders use an intra-day technique known as scalping that usually has the trader holding a position for a few minutes or even seconds.
Most day traders exit positions before the market closes to avoid unmanageable risks—negative price gaps between one day's close and the next day's price at the open. Another reason is to maximize day trading buying power.
Day traders sometimes borrow money to trade. This is called margin trading. Since margin interests are typically only charged on overnight balances, the trader may pay no fees for the margin benefit, though still running the risk of a margin call. The margin interest rate is usually based on the broker's call. Because of the nature of financial leverage and the rapid returns that are possible, day trading results can range from extremely profitable to extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses.
Because of the high profits and losses that day trading makes possible, these traders are sometimes portrayed as " bandits " or " gamblers " by other investors. The common use of buying on margin using borrowed funds amplifies gains and losses, such that substantial losses or gains can occur when do options start trading in the morning a very short period of time.
In addition, brokers usually allow bigger margins for day traders. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than his or her original investment, or even larger than his or her total assets. Originally, the most important U.
A trader would contact a stockbroker, who would relay the order to a when do options start trading in the morning on the floor of the NYSE. These specialists would each make markets in only a handful of stocks. The specialist would match the purchaser with another broker's seller; write up physical tickets that, once processed, would effectively transfer the stock; and relay the information back to both brokers.
One of the first steps to make day trading of shares potentially profitable was the change in the commission scheme. Inthe United States Securities and Exchange Commission SEC made fixed commission rates illegal, giving rise to discount brokers offering much reduced commission rates.
Financial settlement periods used to when do options start trading in the morning much longer: Before the early s at the London Stock Exchangefor example, stock could be paid for up to 10 working days after it was bought, allowing traders to buy or sell shares at the beginning of a settlement period only to sell or buy them before the end of the period hoping for a rise in price. This activity was identical to modern when do options start trading in the morning trading, but for the longer duration of the settlement period.
But today, to reduce market risk, the settlement period is typically two working days. Reducing the settlement period reduces the likelihood of defaultbut was impossible before the advent of electronic ownership transfer. The systems by which stocks are traded have also evolved, the second half of the twentieth century having seen the advent of electronic communication networks ECNs. These are essentially large proprietary computer networks on which brokers could list a certain amount of securities to sell at a certain price the asking price or "ask" or offer to buy a certain amount of securities at a certain price the "bid".
The first of these was Instinet or "inet"which was founded in as a way for major institutions to bypass the increasingly cumbersome and expensive NYSE, also allowing them to trade during hours when the exchanges were closed. Early ECNs such as Instinet were very when do options start trading in the morning to small investors, because they when do options start trading in the morning to give large institutions better prices than were available to the public.
This resulted in a fragmented and sometimes illiquid market. The next important step in facilitating day trading was the founding in of NASDAQ —a virtual stock exchange on which orders were transmitted electronically. Moving from paper share certificates and written share registers to "dematerialized" shares, computerized trading and registration required not only extensive changes to legislation but also the development of the necessary technology: These developments heralded the appearance of " market makers ": A market maker has an inventory of stocks to buy and sell, and simultaneously offers to buy and sell the same stock.
Obviously, it will offer to sell stock at a higher price than the price at which it offers to buy. This difference is known as the "spread". The market maker is indifferent as to whether the stock goes up or down, it simply tries to constantly buy for less than it sells.
A persistent trend in one direction will result in a loss for the market maker, but the strategy is overall positive otherwise they would exit the business. Today there are about firms who participate as market makers on ECNs, each generally making a market in four to forty different stocks.
Another reform made was the " Small Order Execution System ", or "SOES", which required market makers to buy or sell, immediately, small orders up to shares at the market maker's listed bid or ask. In the late s, existing ECNs began to offer their services to small investors.
New brokerage firms which specialized in serving online traders who wanted to trade on the ECNs emerged. Archipelago eventually became a stock exchange and in was purchased by the NYSE. Moreover, the trader was able in to buy the stock almost instantly and got it at a cheaper price.
ECNs are in constant flux. New ones when do options start trading in the morning formed, while existing ones are bought or merged. As of the end ofthe most important ECNs to the individual trader were:. This combination of factors has made day trading in stocks and stock derivatives such as ETFs possible. The low commission rates allow an individual or small firm to make a large number of trades during a when do options start trading in the morning day.
The liquidity and small spreads provided by ECNs allow an individual to make near-instantaneous trades and to get favorable pricing. The ability for individuals to day trade coincided with the extreme bull market in technological issues from to earlyknown as the Dot-com bubble.
In March,this bubble burst, and a large number of less-experienced day traders began to lose money as fast, or faster, than they had made during the buying frenzy.
The NASDAQ crashed from back to ; many of the less-experienced traders went broke, although obviously it was possible to have made a fortune during that time by shorting or playing on volatility. In parallel to stock trading, starting at the end of the s, a number of new Market Maker firms provided foreign exchange and derivative day trading through new electronic trading platforms.
These allowed day traders to have instant access to decentralised markets such as forex and global markets through derivatives such as contracts for difference. Most of these firms were based in the UK and later in less restrictive jurisdictions, this was in part due to the regulations in the US prohibiting this type of over-the-counter trading. These firms typically provide trading on margin allowing day traders to take large position with relatively small capital, but with the associated increase in risk.
Retail forex trading became a popular way to day trade due to its liquidity and the hour nature of the market. The following are several basic strategies by which day traders attempt to make profits. Besides these, some day traders also use contrarian reverse strategies more commonly seen in algorithmic trading to trade specifically against irrational behavior from day traders using these approaches. It is important for a trader to remain flexible and adjust their techniques to match changing market conditions.
Some of these approaches require shorting stocks instead of buying them: There are several technical problems with short sales—the broker may not have shares to lend in a specific issue, the broker can call for the return of its shares at any time, and some restrictions are imposed in America by the U.
Securities and Exchange Commission on short-selling see when do options start trading in the morning rule for details. Some of these restrictions in particular the uptick rule don't apply to trades of stocks that are actually shares of an exchange-traded fund ETF. Trend followinga strategy used in all trading time-frames, assumes that financial instruments which have been rising steadily will continue to rise, and vice versa with falling.
The trend follower buys an when do options start trading in the morning which has been rising, or short sells a falling one, in the expectation that the trend will continue.
Contrarian investing is a market timing strategy used in all trading time-frames. It assumes that financial instruments which have been rising steadily will reverse and start to fall, and vice versa.
The contrarian trader buys an instrument which has been falling, or short-sells a rising one, in the expectation that the trend will change. Range trading, or range-bound trading, is a trading style in which stocks are watched that have either been rising off a support price or falling off a resistance price.
That is, every time the stock hits a high, it falls back to the when do options start trading in the morning, and vice versa. Such a stock is said to be "trading in a range", which is the opposite of trending. A related approach to range trading is looking for moves outside of an established range, called a breakout price moves up or a breakdown price moves downand assume that once the range has been broken prices will continue in that direction for some time.
Scalping was originally referred to as spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread are exploited by the speculator. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds.
Scalping highly liquid instruments for off-the-floor day when do options start trading in the morning involves taking quick profits while minimizing risk loss exposure. The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands. When stock values suddenly rise, they short sell securities that seem overvalued. Rebate trading is an equity trading style that uses ECN rebates as a primary source of profit and revenue.
Most ECNs charge commissions to customers who want to have their orders filled immediately at the best prices available, but the ECNs pay commissions to buyers or sellers who "add liquidity" by placing limit orders that create when do options start trading in the morning in a security. Rebate traders seek to make money from these rebates and will usually maximize their returns by trading low priced, high volume stocks.
This enables them to trade more shares and contribute more liquidity with a set amount of capital, while limiting the risk that they will not be able to exit a position in the stock. The basic strategy of news playing is to buy a stock which has just announced good news, or short sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits or losses.
Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match the tone of the news itself. This is because rumors or estimates of the event like those issued by market and industry analysts will already have been circulated before the official release, causing prices to move in anticipation. The price movement caused by the official news will therefore be determined by how good the news is relative to the market's expectations, not how good it is in absolute terms.
Keeping things simple can also be an effective methodology when it comes to trading. These traders rely on a combination of price movement, chart patterns, volume, and other raw market data to gauge whether or not they should take a trade.
This article will address the following issue: When should an option trader sell weekly option premium? As early as Wednesday, we can find out what weekly options will be listed on Thursday morning. Just go to the CBOE web site http: Each column of the list specifies the first trading day as well as the expiry. The list constantly changes for weekly options on the equities, while weekly options on Cash Indices and ETFs are more stable.
When weekly options are listed on Thursday morning, the premium is not at the same level as the next day, Friday, when do options start trading in the morning the close. The main reason for this discrepancy is very simple, time decay and volatility. On Thursday morning, the premiums are usually richer than at the close on Friday. Option sellers can be faced with the challenge of whether the best time to sell premium is as soon as the weekly options are listed Thursday morning, or to wait for Friday just before the close.
The question of when is the best time to sell is a matter of personal choice. There are traders who trade without looking at the charts, selling premium with the intention of covering it for less than what they sold it for.
In fact, as soon as they get filled, an order to close the spread for half of the credit received or less is placed. These traders do not pay much attention to technical analysis and they do not look at the chart. There is another way of trading weekly options that is more technical. Although these traders still sell either ATM or When do options start trading in the morning options, they are attempting to stack the when do options start trading in the morning in their favor by analyzing current price action.
Moreover, any type of trade, directional or non-directional, can be done based on chart reading. For example, if price is at support 50 and bouncing, then a Bull Put spread could be done by selling the higher leg 49 just below support and buying the lower leg 48 for protection. However, if price is at resistance 60 and it is unable to break higher, then it is logical to place a Bear Call spread. The selection of the sold strike should be done in such a way that it is just above the level of resistance.
The sold 62 leg would in this case when do options start trading in the morning the lower leg, while protection would be the higher leg If the underlying is trading in a channel with well-defined levels of support and resistance, then a Bear Call and Bull Put could be done simultaneously.
These when do options start trading in the morning credit spreads would create an option strategy known as an Iron Condor. The word IRON meaning a spread trade made up of both calls and puts; that is all that the word IRON truly stands for — nothing fancy but just calls and puts. In the case of an Iron Condor, maintenance required should be more favorable than if only either a Bear Call or Bull Put was placed.
This also comes with higher premium because the credit received from both sold spreads adds up while the maintenance goes down. For this sole reason, Iron Condors are very popular with option traders. Finally, let us answer the main question: Is it better to open a trade on weekly options first thing Thursday morning or not? It is true that we should get richer premium on Thursday morning than what we would get for the same spread on Friday just before the bell.
However, keep in mind that with richer premium, we are also assuming more risk. If the position is open after the opening bell on Thursday, it could go against when do options start trading in the morning the very same day or the next day. Is it worth the risk? The reason why we looked at the chart and analyzed the price action was so we could avoid unwanted surprises as much as possible.
From Thursday morning on, a lot could still happen while on Friday just before the closing bell there is less time opportunity for situations that could go against us.
When the position is open a few minutes before the closing bell on Friday, there is not much likely to happen in those last few seconds. The market is closed over the weekend while time decay is working for the option seller. However, keep in mind when do options start trading in the morning there is always a possibility of a gap either down or up which is a risk that cannot be avoided.
Reward is always connected with risk. In conclusion, this article has pointed out considerations to take before just blindly firing off a trade using weekly options on a Thursday morning. It may be wiser to wait until just before the close on a Friday and then to send in the trade.
Be aware of the fact that you should attempt to get into your positions earlier than the very last minute, unless you are selling at the market. The goal is to be in the position before the closing bell. Disclaimer This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk.
The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter.
Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.
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