Monday, June 7, 2010

Strange things that happen at the open

Each stock has its quoted open price. But how is it formed? I've logged tick data during todays opening  and plotted it in the figure below. Each point represents a tick, the color tick type (ask, bid, trade). Take a note that NYSE opens at 15:30 in my time zone. According to Google finance, the stock opened at $37.5.
As you can see, the opening price jumps all over the place in the first minutes of trading. Seems that traders are not sure of what the fair price is, but it does settle after about one minute.
One conclusion is clear, if you want a stock against its opening price, you got to act fast.


  1. It is insane to trade the open unless you are a market maker. The wide spreads and vol are great for market makers but not good for strategies trying to acquire a position.

    I know a number of traders that stay out of the opening 30-45 mins and use the information in that 30 mins to drive their trading for the rest of the day.

  2. @tr8dr: you are probably right. I've been struggling with unacceptable lag (~2 minutes time) and the corresponding slip in my paper trade account for days now. Have tried direct routing to ARCA instead of SMART IB routing, but this only improved things marginally. At this moment I'm seriously thinking about not trading in the first 15 mins after open. Can I make a conclusion that the quoted daily open prices are useless for designing strategies?