Trading the Open - How to Find Morning Stock Trades in 2021

The opening print is one of the most liquid times of the day besides the closing print. Often investors and speculators pay a premium at the open relative to how it trades for the day. Professionally minded traders look for opportunities to buy discount or short premium at this auction event.

Taking Advantage of Volatility

Since the market has been moving higher expectations are abundant of this party continuing, but that doesn’t mean that things go up in a straight line.

Searching for Stocks to Trade 

I was looking for a liquid stock that was stretched out, having good volatility for an opening trade. I didn’t want to be exposed to any “short squeeze” candidates, so my screen included filters for a larger float and low short interest as a percentage of float.

Premarket, I noticed this stock was indicated to open up significantly. That meant the bid was much higher than previous close and the offer (ask) was even higher. Having screened on Feb 3 and preparing for Feb 4, all I had to do is locate stock and see which on my list was attractive indicated before the open.

Placing Orders 

I placed the first order in front of the $149.00 and the second order .48 higher. A good strategy is to stagger orders. If I only was filled on the lower offer, then I would have had 100 shares short…and if it really opened extreme, I would have 200 shares short. I felt the orders were placed strategically and if filled, I had the opportunity to be adequately compensated for the risk taken. Liquid, high volatility stock gapping up… this is a calculated bet, that an air pocket would present itself right after the open; before the market may firm up through confidence in stabilizing prices. After a period of volatility and the price discovery process, stocks firm up and become more directional. Since I can’t be certain of the ultimate direction, I am attempting only to participate in the Opening Auction and subsequent air pocket.

I used only Limit Orders. If not filled on either limit order, the orders would have cancelled as they were specifically designated as Opening Only orders.

As you can see from the actual trade log, I was filled at a whole number (probably where the opening auction found liquidity to offset the market on open type orders). Yes, many market participants only use Market Orders, even for the Opening Auction. This I do not understand.

Why would you anyone want to place their livelihood in someone else’s hands? Do they not want to choose the parameters for participation, and control risk?

I had 200 shares filled short at $150.00 which is better than where my limit orders were placed. The way the auction works, is that you place your orders ahead of the open and you may be filled at your limit price or better. In this case, both orders were filled higher. I then placed a limit buy order strategically.

Through placing the order on ARCA as a passive limit order, I also receive ECN rebates as in I am paid for providing liquidity.

Comments & Bull-Market Considerations

You can see the excessive gap today, volatility after the open and that the premium is dissipating out of the stock. Sure, I could have made more by holding all day…but the market has been rising aggressively with technology stocks performing well. It is still “up” for the day relative to the close, but down from its opening price.

Most often we talk slices out of the opportunities, where picking the tops and bottoms is tough. As with anything in trading…keep the mental game strong!

Trade Profitably!
Rob