How are the opening stock market option prices determined?
If every single bid were to buy or sell at market, would yesterday’s close be chosen as the price?
If there were only two offers, a bid of $1.10 and an ask of $1.00, would $1.05 be chosen as the transaction price, giving both sides a nickle more than they expect?
Is the best idea to wait until the day when you can see the bid and ask prices so that you don’t get a worse deal than the market would be willing to take?
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The opening bid price quote and the opening ask price quote are determined by a process known as an “opening rotation” in which all the market makers for a stock submit their quotes. This used to be a fairly lengthy process and frequently options on a stock would not start until several minutes after the stock started trading. In 1999 the CBOE introduced the “rapid opening system” which reduced the time to open options on a stock significantly.
The opening trade quote is the price at which the first trade takes place.
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That is not possible since trading is not opening until the market makers have submitted their bid and ask quotes and every market maker must supply both a bid and an ask quote. A market order to buy would be filled at the lowest ask price; a market order to sell would be filled at the highest bid price.
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Once again that is an impossible situation since there are multiple market makers for each stock and every market maker must submit both a bid quote and an ask quote for each option on that stock.
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I have seen several experts say that is true, and I follow that advice. Some even go so far as to recommend not trading options during the first hour of trading to give the market time to adjust to overnight developments.
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