Minyan Mailbag - Prints
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
Sometimes in the pre or post-markets there are some prints that are way above or below the previous day's closing price but one cannot get off any trades at these prices. Are specialists or market makers playing poker & trying to bluff & fool traders?
And in the same vein, often a stock will open up or down a fair amount and then reverse course for the entire day. Are 'they' trying to throw out some bait and lure 'us' into biting on a false move? And if so, is there any way to tell a real break from a fakeout?
The first situation is actual prints where someone makes a mistake. Most traders use electronic systems, and even though there are fail-safes imbedded in these systems during the day to prevent a trader from entering an erroneous price, when trading extended hours those fail-safes come off. It also can (foolishly) be some retail customers entering market orders before the opening. We have taken the other side of these trades sometimes because in trading gamma we enter prices to sell above the market and prices to buy below the market pre-opening for a part of our position.
The second situation is the result of how a specialist prices pre-opening supply and demand. When there is an order imbalance we often see specialists price the opening at a price where they know they can make money, perhaps too much. If they can get away with it, they not only take all risk out of the trade for themselves, but price the opening print where it becomes a big payoff.
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