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Why The First Two Or Three Minutes Of Trading After The Markets Drop Over 800 Points Can Be So Important To Option Traders.

Option traders already know this. The market sometimes pops on the opening after a large one day drop. Yesterday, a Monday it closed down over 800 points. The problem sometimes is that if you put in a ticket in the premarkets to get in on the opening, a "buy at market" ticket you risk getting filled at a ridiculously high price if the price of the stock opens with a gap to the upside. Let's look at how one series of Home Depot Call options traded on the opening.
Today is a Tuesday.
The low of the day on these Call options happened on the opening with a price of $6.46. The chart doesn't show this low priced sale happening. Let me try and explain how this happened. Look at this. Here is where it can get complicated.
The chart above shows a spike at 9:00 a.m. Yet the markets don't open until 9:30 a.m. You can't trade options in the premarkets. If you submit a "buy-at-market" or "sell-at-market" ticket it sits on the books and gets an opening fill of the opening 9:30 a.m. price. Once again that price happened to be $6.36. One of the things this means is that the spike up to and just slightly over $15.00 you see on the screen actually happened at 9:33 a.m. on two contracts. Sellers cashing out on option positions purchased on the previous day would of had to place their sell tickets towards the end of the last few seconds of the first minute of trading or at the beginning of the second minute of trading to catch this top of the day trade. If they were to do a premarket "sell a market" ticket they would have got a $6:34 fill or if they would have specified a price like $10.00 they would have got their fill somewhere in the first three minutes of trading. Other stocks also jumped. Boeing opened $.32 cents open and reached it's high of the day at 9:36.00 a.m..
Caterpillar dropped on the opening and it came charging back up again.
Ford opened five cents lower and then jumped.
Many other stocks did the same. Get in and get out quickly. This is how you play rebounds.

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