A Quick MOO Limit Explanation

[Dave Nadeau <dave@xxxxxxxxxxx>]

I decided to post on this subject publicly, since I have received a fair number of questions
privately regarding my earlier post.

This is the way I understand the strategy of placing Market On Open limit orders.  As Cash
indicated earlier today, this method is best applied using software whereby a trader can enter a
very large number of these orders in anticipation that only a fraction of them will actually get
executed.

This method is targeted towards a market run by a specialist who will match opening orders to
balance supply and demand and arrive at an opening print.

A trader would look at the index futures markets prior to the open of Reg Trading Hours.  Let's
say that futures are trading down 0.5%  Applying that factor to a $30 stock, you'd be expecting it
to open down $0.15.  The strategy's intent is to fade anything that's above or below that amount. 
So, you'd put in a buy limit order that cancels right after the opening print at some amount below
$29.85, say $29.75.  Also, you could put a sell limit on the opening print for $29.95.  

In both cases, you are expecting the opening price to revert to the $29.85, and you'd make a dime,
or more if the market keeps moving.  Some traders prefer a limit order only in the direction of
the market bias, others will take both sides.  Also, the distance from the expected print will
also affect your "hit" rate for executed orders.



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Dave Nadeau
Fort Collins, CO