this post pretty much explains everything. http://www.elitetrader.com/vb/showt...34998#post34998 here's an old spreadsheet i made off that post. it's pretty basic. i'm sure there's a feature or 2 that the OO pros use that i left out. the bold white columns are the ones you have to change everyday.
This link to that post works: One trader's method from the 1st Don's Opening's Journal: mike s - 01-09-02
thanks for catching that link problem, NYSEProTrader. you too ManahattanTrader.. i knew i left something out. the betas are important, and i forgot to put that formula in. Carlos, i used black numbers for a second column of calculations on my spreadsheet (column E) to make it less cumbersome for myself. i redid it in white numbers here, and with mike s's numbers. it's complicated to explain, but mike's post goes through it in detail.
I don't believe the method, as Don presents it, uses betas. He goes strictly by percentages and seems to do quite well.
You can use an individual stock's beta to adjust the expected opening price for the stock. In other words a stock with a beta of 2 would be expected to open up 2% if the futures are indicating the market to open up 1%. Just multiply the beta by the indicated percent change the futures are showing, and use that to calculate where the stock should open. Some use beta, others just go with however much the market is expected to gap.
i use % of change in futures from last nights close... i trade the oex basket which does have a correlation to the esu5... i use a base % of +/- .75% and add or subtract the futures skew... works for me... i use much smaller size compared to most but % wise i do as well or better than the big guys.... still trying to become a big guy though...someday...