1. Fair value is located at www.programtrading.com . It is not a percent, it is an amount over the spot price. 2. You add the .85 to the spot price. Divide that number by the spot to get a percentage up or down. 3. Then apply that percentage to your group of stocks. 1 percent up is a FV of $101 on a previous day's close of $100 . 4. 1 percent on each side is fine. Approximately a $100 bid, and a $102 offer. Beta is simply the amount of movement your stock "should" move in relationship to the overall market. A higher beta would apply to "tech stocks" and a lower beta would apply to the "supertanker stocks" that don't move much. You can find betas on most data providers or even Yahoo.finance. You apply a beta to the envelope for higher beta stocks (instead of 1.0, you may use 1.5, a wider envelope). I'm sorry if I missed something. Don
I did double check your post and, of course, the error is where you are using betas in the beginning calculation. You caught me, I didn't read the whole post in detail....and I apologize. I hope the above post answers the origina question. Don
lol...how many mistakes did I make ?! I thought the mistake that I made was in using the closing price from yesterday ($61 in the example) instead of the FV of GM calculated to be $61.27. I wrote the following: Instead it should be: buy $60.96 ($61.27-$0.31) sell $61.58 ($61.27+0.31) ----------------------------------------------------------------------- And now you tell me that I did the Beta wrong?!? Awww man! ok what exactly did I calc wrong? and what should it have been?
It seems common on message boards of all types that there are questions asked which could be answered if the questioner took the time to read over previous posts and do some research. Considering the volume of message traffic on OO one would guess that the answers have already been discussed. - AnonBT
Don, I've gone over the calc and can't find why you would think the Beta was applied incorrectly? could you please tell me what, specifically, you think is wrong with it? Thanks.
On this example with the 1165.5 (S&P Futures) and 1161.95 (SP Cash, actually S&P Cash and fair value, or is is supposed to be just S&P cash only.
You're doing fine, all I do differently is apply the beta to the adjusted stock price instead of the adjustment to the stock price (minor difference). Many traders don't even bother with beta, and just widen their envelope instead. 1] instead of Beta use ATR...OK 2] use large caps, or mid caps or a mix I use only S&P 500 stocks. 3] how and when to vary the envelope % This can be important. Whenever the futures are going to open 5 + points away from FV, either way, I go to a higher number on the "most likely side". i.e. today futures are opening down 10 points or so, so I will use a 1.2 buy side and a .08 sell side. On a 'normal" day, lower to .7 or .8. 4] the mix of sectors/industries to use Up to you , I have a couple of brokers, banks, retail, tech, etc. Keep track of which stocks act well and get rid of those that don't. A bit of "trial and error." 5] which stocks to flat outright, NOT use Careful with MRK and VIA.B. 6] how to manage the trade and exit once filled This is where the "art" comes in. If you get more than 3 or 4, then you should place "winnig stop" orders in (for the slingshot effect), while you're tape reading for the rest. As I said before, all the basics of exits apply the same to opening orders as any other posiiton during the day. Look for group, market, prem, and all the rest. Watch for "shake outs" for example, GE is good at opening down a dollar, going down another 20 cents or so and then rebounding with the market to higher levels....don't let it "shake you out." Practice, is of course, key to this. Build up to a number of stocks where you get 3-5 fills daily.... Good Luck.... Don
Great thread, first time I've seen the opening order thing broken down. Anyone have a list of core stocks that they use for opening orders?