Accurate option price in the morning

cafeole · Dec 10, 2015

I have been told that you should not buy or sell an option at the opening because the prices are not accurate. You should wait for about 20 minutes after the open to get in/out of a trade. Does anyone know if this is true?

stepandfetchit · Dec 10, 2015

my 2 cents:
40 years ago (or so), when you would crank your automobile on a cold morning, you would typically allow a few minutes for it to warm up and quit sputtering. More recent times, this is less noticeable.
The market for thinly trading options seems to exhibit a similar ("amateur? time", during the first few minutes of a days trading). Some people avoid the first few minutes of trading, others do not. It may also depend on what kind of trades you are placing. For example, if you are opening a new complex multi-leg option trade, waiting until pricing normalizes a bit may be preferred (since you are layering multiple pieces, and would prefer an atomic entry). If you are placing a limit order to get a "good" price entry (or exit), this could be an ideal time to try to get a fill.
"prices are not accurate" is probably not a reasonable description of what is happening, perhaps increased volatility would be more appropriate reference (IMHO)
PS: When placing an option order (buy or sell), it is preferable to never use a market order, but use a limit order if possible to restrict your fills to the outcome you deem acceptable.

cafeole · Dec 10, 2015

stepandfetchit said:
my 2 cents:
40 years ago (or so), when you would crank your automobile on a cold morning, you would typically allow a few minutes for it to warm up and quit sputtering. More recent times, this is less noticeable.
The market for thinly trading options seems to exhibit a similar ("amateur? time", during the first few minutes of a days trading). Some people avoid the first few minutes of trading, others do not. It may also depend on what kind of trades you are placing. For example, if you are opening a new complex multi-leg option trade, waiting until pricing normalizes a bit may be preferred (since you are layering multiple pieces, and would prefer an atomic entry). If you are placing a limit order to get a "good" price entry (or exit), this could be an ideal time to try to get a fill.
"prices are not accurate" is probably not a reasonable description of what is happening, perhaps increased volatility would be more appropriate reference (IMHO)
PS: When placing an option order (buy or sell), it is preferable to never use a market order, but use a limit order if possible to restrict your fills to the outcome you deem acceptable.
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Thanks for the reply.

Do you consider all options "thinly traded"?

stepandfetchit · Dec 10, 2015

No! SPY & AAPL near month expiry near the money options are heavily traded.

cafeole · Dec 10, 2015

Thanks, I thought that was the case.

OptionGuru · Dec 10, 2015

cafeole said:
I have been told that you should not buy or sell an option at the opening because the prices are not accurate. You should wait for about 20 minutes after the open to get in/out of a trade. Does anyone know if this is true?
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When it comes to expiry Friday and you are anxious to close a position it might be best to close it at market open with a market order. The next 20 minutes could be brutal.

Victory5 · Dec 10, 2015

You'll often get some weird action in the first few minutes with even moderately or heavily traded options. Getting a good fill is incredibly important with option trading so unless you have a really good reason to get in, always wait until you can accurately gauge where you're going to get filled. There is no hard and fast rule to this and it comes down to you watching how a particular underlying trades and how their options trade...

lawrence-lugar · Dec 10, 2015

I agree with some of the others, at the open at 9:30am...it can be hectic and wild...it's good to wait a couple minutes or even five...for things to settle and calm down and reflect normal behavior and let the order flows start to flow smoothly.