How do I execute this?

[88bluegt]

Hey guys, first I will introduce myself since this is my first post. My name is Dan, live in NJ, 23 yrs old with an extreme passion for finance. Current working towards my Business Admin. degree (will pursue finance degree afterwards). I currently work @ a bank with a mortgage warehouse lending division. ANYYYYYYYWAY....

So I receive daily emails (about 7:30am) with the current news (mergers, earnings reports, etc.). Everyday when I check this email it lists the news, the stock and if its up (or down) in the pre-market. Example, today, there was big news on FDO (family dollar). In the pre-market it was up almost 25%. Question is, how does an INDIVIDUAL take an aggressive approach to this and capitalize on the heavy movement?

Thanks for any help/suggestions...

Dan B.

 

[amit1986]

FDO actually opened today at 55.50 after closing yesterday at 43.98. As soon as it opened, it continuously ticked lower and it's now sitting at 53.93. So, had you even bought on the open, you'd be sitting on a loss.

If you are interested in pre-market trading, then at 8:30am EST you can place limit orders and hope someone hits you. I strongly advise against this, since pre-market trading on volatile news related stocks like FDO can be disastrous.

Not really sure how else you would have been able to take advantage of a move like FDO, but here's something:

The reason FDO gapped up so much was because it offered to go private by another company around the $55 - $60 per share area. Thus, if FDO were to accept the offer, all investors in FDO would have been offered this price. This was the reason why it gapped up. Since all this information was already contained in the price during pre-market, it would have been difficult to take advantage of FDO today. The only people who made money from FDO were those who bought it before yesterdays close.

 

[88bluegt]

amit, thank you for the explanation. So, the gap from $43.98 to the open at $55.50 today was from after-hours trading last night? I'm assuming thats the only way for a gap like that to take place...

 

[amit1986]

No, that's not the only way a gap can occur. Gaps can only occur during a period of no trading activity. A stock can be halted during a trading day for some time and it can open gap up/down on the same day. This happens because traders pull their bids/offers in light of recent news.

Sometimes gaps also occur during trading activity, but those are rare and quite small.