Nitro, I am asking because I can't see where Beta comes into Fair Value. I thought Fair Value was... well.... Fair Value. I can see where Beta would be a factor in how far and how fast it moved after it started trading, but I don't see the Beta effect BEFORE it starts trading. That is why I asked the question. I have certainly looked at this, I just don't quite see it. Anybody else?
Tony, My understanding is that Beta is price change of your stock relative to price change to market (mostly S&P). If S&P go up by x%, your stock normally would go up by Beta * x%, so this is the fair value of your stock.
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BOHICA: beta is not involved in calculating fair value for the SP. Beta is used to adjust for individual volatility relative to the S&P. Here's a good link with explanation: http://www.programtrading.com/fvalue.htm Also, this has been discussed 100s of times in the past. Just search and theres a lot of background info.
wan2BTrader, Thanks, That makes some sense. In my real world (admittedly limited) experience, I have had some unpleasant experiences with high Beta stocks, hence the question. I have had high Beta stocks get very skewed on gap days. Skewed to the point that, as an example, the short opening price was very near or BELOW the previous close. Then the stock opened up a bit, I get filled short on the open, then it takes off UP. That is why I wanted to know how or if the Beta really had anything to do with where a stocks FV should be. Vikana, I have read all the threads on opening orders. Now, perhaps I missed it, but I do not recall seeing an explanation of what I was asking. If I had a couple of years experience with opening orders, I am sure I would not have to ask. Thanks,
Tony beta is just the amount the stock moves in relation to an index If the S&P's are up 10% that a stock with a beta of 1 should be up 10% if they have a beta of 3 they should be up 30% If a stock has a beta of .05 than it should be up 5% and so forth. I make money on high beta, low beta and equal beta stocks all the time. The high beta you must keep an eye on more. They are higher risk......yes but they are also higher reward. You've screamed a few times about a certain high beta stock after being hurt in it (yet I reacted to the index and only lost .05 net) This same stock is one of my largest winners for opens yet after only one experience you said I'm never going to trade it again. Robert Tharp
Sorry if the "beta" relationship was not explained further to you. This is a key to successful openings, much like seperate sectors can be. Many traders actually use different pages, with different stocks, on their automated openings. That way they can more easily modify their enveloping percentages to reflect a more accurate evaluation of "fair value" for the opening. BTW, small opening today (8/26) break even. Don
You had a BUY LIMIT at 35.39, therefore you did not get a fill because the price DID NOT TOUCH your BUY LIMIT price of 35.39.