Education · Lessons from the Byte
Buy at the open or wait for a better price?
The price at the open. Alerts are written in the evening while the market is closed. The Last Close shown in the alert is the option’s closing price from the previous trading day and provides a reference point. Once trading opens on Alert Day, the option may be available at a higher or lower price. Your purchase price is the basis for calculating your targets and assessing whether the trade still fits.
The calculation method. Every alert shows standard targets of 20%, 50% and 100%. The targets below are calculated from the stated price by multiplying it by 1.20, 1.50 and 2.00, rounded to the nearest cent, before fees and taxes.
- From $6.65: The 20%, 50% and 100% targets are $7.98, $9.98 and $13.30.
- From $9.00: The same targets are $10.80, $13.50 and $18.00.
What ANET reached. The option's highest price before expiry was $13.00, on September 25. That was past the 20% target calculated from the $9.00 Best Buy-In and short of the 50% target. From $9.00, the option needed to reach $13.50 for a 50% gain. The $9.98 level was the 50% calculation from the $6.65 Last Close.
The price in the alert is a reference. The trade begins with the price the market actually gives you.
When the available price is different from Last Close, the decision is whether the trade still makes sense at that price. Paying more raises the price needed to reach each percentage target; paying less lowers it.
This lesson first appeared in Weekly Options Bytes, our free email from Ian Harvey’s options research desk.
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