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1. Use a limit order that makes it to the floor in time for your brokerages
firms "allowed time" to qualify for the opening rotation.
2. The amount of initial orders will skew the opening toward the bid or the
offer. If the imbalance is to buy then you'll open at the offer.
Limit orders and marketable limits are viewed the same ... so there should be
no difference.
You might want to take a minute and go to the CBOE web site and read about the
new system being rolled out for opening rotations. the system is called the
ROS(rapid opening system)and is currently being rolled out in equities, but
should hit the OEX shortly. The current system, where ROS is not in use yet,
is a one price opening consisting of a manual crossing of the order with the
imbalance bought or sold by the market makers. ROS is a delta based opening
system .. where the market makers agree to buy or sell a given amount of
deltas(NOT DOLLAR PREMIUM)at the opening. This appears to be a much more
efficient and RAPID method for opening of volatile issues. Under the current
system the market makers arrive at an opening price .. the Order Book Official
makes them compete to establish the opening values .... the cross able portion
is crossed and the imbalance is traded with the market makers. For example
let's say conditions merit an opening of 4 - 4 1/8 with 850 to sell and 600 to
buy. 600 cross and you would opening with the market makers buying 250 at 4.
Limit order would be filled and included in the opening if they got there early
enough. If you broker holds the limit in his own deck ... you might not be
"in" for the opening as you don't technically exist until your broker displays
the order. The challenge with trading at the opening, and you point this out,
you don't really know what the opening price will be. If the futures open a lot
lower the opening will reflect cheaper futures(Cheaper calls more expensive
puts) but it might also reflect higher volatility if the futures are down a
lot(More expensive puts and calls). I would avoid trading the opening without
a limit order .. just in case. I would also make doubly certain I understand
my brokers rules about what qualifies for the opening and exactly how the
handle the opening. A brokerage house can set policies less liberal than THE
EXCHANGES. For example there is nothing illegal about a firm establishing a
rule that your order must be in there hands by 8:15 to qualify for the opening
even though the exchange rule says 8:25. Also remember that because the OEX is
so volatile orders that the exchange views as legal, may not be allowed by your
brokerage firms. If you have a firm understanding of OEX/SPOOZ pricing you
might want to enter your orders with a futures contingency. This is probably
one of the smartest ways to trade for a knowledgeable trader ... it is the way
many institutions and professionals trade. For example your order could be buy
the calls at 4 limit if the futures trades below xxx. A legal order .... go try
to find a discount broker who wants to take it. So it is critical that you not
only understand the process, but also understand your brokerage firms
abilities.
You should know that inn the interest of full disclosure I'm an officer of the
exchange.
Wayne Moody wrote:
> Questions about buying on the open:
>
> 1. What is the recommended way to order if I want to buy on the opening
> when the series is expected to open lower, and I want to invest a certain
> dollar amount? The best guess might be 3 5/8, but anything between 4 1/4
> and 3 1/4 is possible. I want about $5000 worth at the opening price,
> whatever it is.
>
> 2. On this kind of opening, when the series will open lower reflecting
> action in the S&P futures, how much effect do initial orders have on the
> opening price? I mean, if the market maker deems 3 5/8 the fair price based
> on the futures, so that without any orders he would initially quote
> 3 1/2 - 3 3/4, is that determination modified because someone wants
> to buy or sell 20 or 30 at the market, or will it be 3 5/8 regardless?
> I'm speaking of moderate size, not big-time pressure or support.
>
> Another angle: if I order 20 at limit 4, will the price tend to be higher
> than if I ordered 20 at the market? Or no difference?
>
> W.M.
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