This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Skip Raschke: Stock Trading Halts, Part 3

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

Options Course: On Saturday, December 1, the CBOE, Option Pit and OptionsProfits are hosting a full-day class, Using Volatility to Improve Directional Trading CLICK HERE FOR INVITE AND TO REGISTER.

CLICK HERE for Parts 1 and 2.

Most individual stock trading halts are of the gap and trap variety (See: Gapped and Trapped). Thus, those gapped and trapped are not happy traders or investors. The shock to the system from the time of the announced trading halt tends to irresistibly morph into fear as they who are entrapped are caught in the web known as long or wrong, or, short and instantly shorter!

A halt of a stock is a trumpeted clarion call sounded too late for all those who have been gapped and trapped. It is at this time that their worst fear creates even more panic. For those outside of that trading mess, peering into the panic, they should be licking their proverbial chops because a highly probable short term top or bottom (depending) is about to form soon after the halt has been removed. It is human-natural that a yell of Fire! will cause the proverbial theater to empty post haste. The stock market's proverbial yell of "Fire!" has the same effect on a stock's price. This type of trading action is vacuum-like because it tends to clean up the halted stock's sellers or buyers, depending.

The best course of action for an options trader post-halt is to buy an at-the-money vertical spread because the vols will most likely be nicely pumped in the out-of-the money options. In addition, the at-the-money options should be less pumped up in price as per the upward revaluation of the vols post-halt.

Whatever you do however, do not open a negative gamma position early in the process as the volatility contraction period intended for that options strategy to be successful does not instantly follow once the trading in the stock begins post halt. Thus, a front spread, the negative gamma type, is not the initial tactic to use. Most professional trading firms want to see the trading action (stock and options activity) before they attempt to re-position themselves post-halt and post-news dissemination as that is prudent. The simple rule to follow here is: do not be pioneers. Let the big boys carve out the next price trend first.

For those who follow contrary opinion strategy the vertical call spread would be the tactic for any stock halted based on negative news and the vertical put spread would be the tactic for any stock halted based on positive news. As always, average into either position in three separate lots so as to average the price as well as prudently managing your capital (See the series: Averaging In).

Why any halt is allowed to last longer than a few minutes is beyond me. Prior to the modern information world and of course the Internet, news that could create chaos had to be disseminated in due time. Today that excuse is a dog that just doesn't hunt. Stock exchanges have to power to rule for the most part as per how long a halt should last. But ruling that a recent halt like Google's (GOOG), lasting over two hours, was simply outrageous and biased against the sellers in that case. Given the fact that in just the last month two major trading halts have occurred (Google and Apple (AAPL)), the possibility of more halts coming has to be at least considered. Be careful.

OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits

EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

At the time of publication, Skip Raschke held no positions in the stocks or issues mentioned.


Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
Back to Nasdaq


Top Rated Stocks Top Rated Funds Top Rated ETFs