Invest and Trade Profitably with Jon Johnson

What do the suffixes -E, -A, -P on options chains mean? Why are they different prices for the same option?

August 30, 2000

Those suffixes tell you what exchange the option is trading on. When we get quotes from our brokers on option prices we ask them to find the best price available and route our order through that exchange. Doesn’t always happen. The prices vary because there is no mechanism in place that requires the exchanges to coordinate their prices. In a way that is good as it gives us a chance to work the market for a better price-again, much like those who are willing to pay retail for a car while others want to work the system a little to get a better deal.

When the market gaps higher and then pulls back, how do I know when I should take a position with a stock so I can catch the move back up?

This is not easy to do if you are not able to watch the market, but with a good broker, it can be done. When we see the market gap open, we rarely chase after stocks. Our experience has taught us that on most occasions, even on a strong rally day, we will see the market pull back after the first half hour to hour and a half before it moves back up. That gives us a chance to get in on the move if we think it will move back up for the day.

The trick is knowing when to get back in. As with most tactics in the market, the idea is the same, just applied to a different situation. A good example is CMGI on Monday. The market jumped ahead, but pulled back after about an hour. CMGI was pulling back early on. It started to move back up, but it made one false move and fell back down before trying again. If you bought on the first move, you had to suffer through waiting to see if the stock was going to rally back up. The safest entry point, the one that has the best chance of success, it to wait until the stock moves back up and breaks above the point it gapped open or the high it hit before it pulled back. Those points will act as resistance, and the stock needs to break them to move higher for the day. When CMGI approached where it gapped open on Monday, it pulled back and had to make another run at it. It broke through there, moved up to the high after the gap, moved sideways, and then moved up from there.

To play these, inform your broker in the morning what you are looking to do. Let him or her know that you want to let the stock move back up over its opening price or its high before it pulled back. You may miss some runs. Some stocks don’t come back. That happens. We would rather miss a few, however, than buy in too early before the rally can prove itself, and watch it fall back on you. When you wait for that stock to break its morning top, it is proving itself. If the morning top was $20 higher, you may want to get in when it breaks above where it opened. If you are specific with your broker, it can be done.

If you can watch the market, the best tool is some form of real time feed. Otherwise you are getting delayed quotes-flying blind with a 20 minute time lag. One thing you can do is watch the NASDAQ on Big Charts. It is a two minute delay, and by watching that, you can gauge when the market is turning with a smaller delay. It does not give you an exact read and you cannot see the pattern of your stock-a major defect-but it does give you a little better picture.

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