Options Question

  • Posted: 13 February 2011 01:06 AM

    I’m wondering if someone can answer a question for me. Since options are not traded in after hours, what happens to a sell order the morning after a stock gaps up because of news released after the previous days close? To be more specific, a stock closes at $200 a share and one of it’s calls at $1000 a contract. Quarterly earning are released and the stock jumps to $220 in after hours. There are sell orders at $1000 a contract, based on the previous close. If the seller neglects to cancel that order before opening, what happens to it? Thanks!

         
  • Posted: 13 February 2011 02:09 AM #1

    joel90069 - 13 February 2011 05:06 AM

    I’m wondering if someone can answer a question for me. Since options are not traded in after hours, what happens to a sell order the morning after a stock gaps up because of news released after the previous days close? To be more specific, a stock closes at $200 a share and one of it’s calls at $1000 a contract. Quarterly earning are released and the stock jumps to $220 in after hours. There are sell orders at $1000 a contract, based on the previous close. If the seller neglects to cancel that order before opening, what happens to it? Thanks!

    Your sell order @ $10 is the minimum you will accept.  If the price for your Contracts gaps above your minimum price, it will sell at the opening prices, even though that price is above your minimum..

    Caveat:  NBBO does not trade during the first 5 minutes after the open.  Off the top of my head I can’t remember the options exchange that exclusively trades in the first 5 minutes (your broker can answer that question).  If the underlying stock gaps up at the open, and continues to rise during the first 5 minutes your Contracts will sell at the price being quoted then.

    I have been burnt in the past where AAPL gapped up at the open but didn’t hold the gap for more than the minimum 5 minutes that NBBP is locked out.  By the time the 5 minute exclusive period expired AAPL (and its derivatives) had dropped below my sell price.

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  • Posted: 13 February 2011 02:33 AM #2

    Thanks for the response. Actually, I was asking from the other end. What happens if I put a buy order in for the previous closing, ask price, and the underlying stock gaps up in the morning.

         
  • Posted: 13 February 2011 02:34 AM #3

    joel90069 - 13 February 2011 06:33 AM

    Thanks for the response. Actually, I was asking from the other end. What happens if I put a buy order in for the previous closing, ask price, and the underlying stock gaps up in the morning.

    You will get the higher of your order price, or the price generated by the gap up.  Same caveat as before.

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  • Posted: 13 February 2011 02:43 AM #4

    Wait. You mean your order just won’t get filled?

         
  • Posted: 13 February 2011 10:08 AM #5

    If you put in a limit BTO order for $10per contract and the ask price gaps up to $10.20 at the open your order will not fill because it is higher than your limit price which is the highest price you are willing to pay.

    How was that for a run on sentence?  My 6 year old daughter would not be proud…

         
  • Posted: 13 February 2011 02:26 PM #6

    Thanks. That was my understanding also.

         
  • Posted: 13 February 2011 02:54 PM #7

    joel90069 - 13 February 2011 06:26 PM

    Thanks. That was my understanding also.

    And I should have been clearer.  I was talking sell orders.

    Buy orders act the same with gaps, but it must be a gap down.  In that case you get the lower price generated by the gap down.

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  • Posted: 13 February 2011 03:01 PM #8

    Thanks again, Greg. I could’ve been more clear also. It was kind of a complicated scenario to write in the first place. I asked a couple of friends but they had no idea what I was talking about.