Hi i have a question on options trading?

Question

What I need to know is, and this needs to be answered with somebody that actually trades options for a living. The other day i was watching this stock in pre market trading it was up by 5 dallars or 5 points in pre market. i wanted to catch that move using options, i have been paper trading with option express. so i purchased deep in the money calls. and the last bid and ask, the price of the option was like 8.20 - 8.50 the last trading day, i put a limit order in for 8.60 before the market opened, i was up tremendous that day because of the price discrepancy. So my anserwer is, is this a flaw with option express, or can you put in a order in using options if you see a stock up or down significantly in pre market trading. to capture the move in within the intraday.

THANK YOU

Answer 1

You are asking a very important question. The fact that you are asking it shows a greater than average understanding of the markets. That said, I'm sorry to have to say that is impossible to answer for sure. Any type of paper trading does have a limitation in that a computer or person is deciding if and when an order gets filled and this might not be totally realistic. When you are ready to move on, start with real money in tiny amounts and watch what happens with real orders getting filled.

Back to your example. Please consider another theory. You didn't capture the 5 point "discrepancy". You might have been profitable because there was a big follow thru when the primary market opened and you caught some of that move. I have done this, and when it works, it works well, but sometimes there is no follow thru, or worse, there is a backlash, so being ready to exit promptly when the trade is not forming is crucial to success.