What Is Meant By A GTEM Order
Meaning:
The phrase "good 'til extended market" (GTEM) refers to a form of duration order that investors can make with their brokers and specifies the duration of the order's validity. An active order in both the pre- and after-hours markets, a GTEM buy or sell order is one that is open or exercisable for the duration of the day. This expands to the day order, which is only operative during regular market hours and is cancelled after market hours are over.
As long as the requirements for the order are satisfied, GTEM effectively permits the order to be exercised at any time while the security trades. Due to the relative volatility of the extended market, this form of transaction will often be accompanied by a pricing restriction on the order, such as a stop or limit.
For instance, a trader might set up a GTEM stop-loss order on the shares of a firm that would release its quarterly earnings results following the conclusion of regular market trading. In the event that the earnings were below expectations, this could result in a drop in the share price, converting the GTEM stop-loss order into a sell order in the after-hours market, in which case the position will likely be sold.
The trader would typically have to wait until the market opened the next day without a GTEM or other after-hours order, which could result in getting a significantly lower price than what could be had in the after-hours market.
As a reminder, you can set a stop or limit order using the following other time-limit terms:
• Day signifies that the order is only valid for that trading day.
• The term "good 'til date" (GTD) refers to the fact that the order is in effect until a particular date.
• It's open until the entire order has been filled, which is known as fill or kill (FOK).
• Immediate or cancel (IOC) signifies that any portion of the order that is not filled right away will be canceled.
• The term "good 'til cancelled," or GTC, designates an order that is active until it is fulfilled or cancelled, with a 90-day maximum.
Keep in mind that the order is immediately cancelled if your price (bid or ask) is not met at all during the time period you choose.
How Does Extended Trading Work- Definition, Operation, Risks, And Hours Of Extended Trading:
What Is Extended Trading?
Extended trading is trading done through electronic networks before or after the listed exchange's regular trading hours. Comparing such trading to regular trading times when the exchange is open, it usually has a lower volume.
Pre-market trading for equities often takes place in the United States between 4:00 and 9:30 a.m. Eastern Time, while after-hours trading typically occurs between 4:00 and 8:00 p.m. Eastern Time (EST). The hours of operation for the U.S. stock exchanges are 9:30 am to 4:00 pm EST.
Key Lessons
• Extended trading is the term for trading that takes place outside of the exchange's regular trading hours on electronic marketplaces.
• The length of extended trading hours varies according to the asset or securities being traded.
• The hours of operation for stock exchanges in the US are 9:30 am to 4:00 pm EST. Outside of certain hours, extended trading takes place.
• Extended hours' lower volume can result in greater risk and volatility, but it can also create opportunities for the savvy trader.
Insights On Extended Trading:
Even individual investors now have the opportunity to place trades outside of regular exchange hours thanks to electronic communication networks (ECNs), which have democratized extended hours trading. Extended trading is a great signal for forecasting the direction of the open market because it enables investors to react swiftly to news and events that happen after the exchange closes.
Since market orders are dangerous due to a lack of liquidity during lengthy trading sessions, the majority of brokers demand that traders place limit day orders.
Additionally, the majority of brokers only let customers trade extended on Reg NMS equities. During extended trading hours, certain over-the-counter securities, funds, options, and other markets could not be accessible.
Extended Trading Hours:
• Most extended trades often take place around regular trading hours. This is due to the fact that the majority of news that impacts investors happens just before or right after the exchanges open or close.
• Although extended trading in the United States can normally begin at 4:00 a.m. EST, most of it takes place between 8:00 and 9:30 a.m. The majority of extended trading takes place before 6:30 p.m., although investors may continue trading after the stock exchanges close until 8:00 p.m.
• There may be a high extended trade volume if a noteworthy news event happens either before the market opens or after the exchange closes. However, compared to the volume during the hours the exchange is open, volume in the extended hours is often lower on most days.
• In the extended hours (pre- and post-market), some stocks and exchange traded funds (ETFs) trade in significant volume, whereas other stocks trade in very little to no volume.
• Depending on the underlying assets, the U.S. options and futures markets typically have different trading hours, whereas the foreign exchange (forex) market is open 24 hours a day.
Trading Risks Involved In Extended Trading:
Several concerns connected to extended trading are highlighted by the U.S. Securities and Exchange Commission (SEC), including:
Limited Liquidity:
Trading volume during extended hours is lower than during regular hours, which may make it challenging to complete trades. During extended hours, some stocks might not trade at all.
Large Spreads:
When there is less trading activity, the bid-ask spreads tend to be greater. This makes it more difficult to execute orders at advantageous pricing and might negatively affect the market price for execution.
Increased Volatility:
Less trading volume frequently results in a higher level of volatility because of the wider bid-ask spreads. Prices are subject to abrupt changes in a short period of time.
Price Uncertainties: It's possible that the price of a stock trading after hours will differ slightly from the price during business hours.
Professional Competition:
Major institutional investors, such as mutual funds, who have access to more resources, make up a large portion of participants in extended trading.
Possibilities For Extend Traders:
If a trader can position himself to be on the right side of the action, all the risk associated with trading after hours can also be opportunities. For instance, even though a stock may have closed at $57, placing a bid to purchase at $56 or $55 may be triggered in extended trading since there are fewer offers out there. If someone wants to sell, they may also choose to do so for $56 or $55, even though the price was $57 just moments earlier.
The ability to transact throughout extended hours also enables traders and investors to respond quickly to news that breaks after the exchange has closed. If a company publishes disappointing numbers, the stock will probably start to fall, allowing the trader to close out their position before the exchange even opens. By the time the exchange opens, there might have been a lot more selling, and the price might be considerably lower.
A Stock Market Example Of Extended Trading:
Take for example the extended trading session on Twitter Inc. (TWTR) on a typical day without any significant company announcements. At 4:00 pm, the stock's trading on the exchange closes. The one-minute period is active prior to 4:00, with price change occurring every minute of the trading day. Each of those one-minute price bars also has a volume component.
After 4:00, the volume drastically decreases. Due to the fact that there was only one transaction within that one minute, transactions may still change the price. This is due to the fact that there are fewer bids and offers, and as a result, when they change, it may tempt or frighten someone into making a transaction at the new bid or offer. In this case, the evening's final transaction happens at 7:55.
And the first transaction happens at 7:28 the following morning. Although the price is currently trading above the previous close price, it quickly corrects itself after falling more than $0.75 in a matter of minutes. Before the official exchange open, when volume increases, the price fluctuates again on a low volume.
The Meaning Of Volatility In Finance And How It Affects Stocks?
What Is Volatility?
A statistical measurement of volatility is the dispersion of returns for a certain securities or market index. Most of the time, when a security is riskier the more volatile it is. The standard deviation or variance of returns from the same securities or market index is frequently used to calculate volatility.
Volatility in the financial markets is frequently characterized by significant swings in either direction. A "volatile" market, for instance, is one where stock prices fluctuate by more than 1% over an extended period of time. When determining the price of an option contract, an asset's volatility is important.
Key Lessons
• A statistical measure of an asset's return dispersion, volatility shows how much an asset's prices vary from the mean price.
• Beta coefficients, option pricing models, and return standard deviations are a few tools used to gauge volatility.
• Because the price is anticipated to be less predictable, volatile assets are sometimes thought of as riskier than less volatile ones.
• Volatility is a crucial factor for determining how much an option will cost.
Understanding Volatility:
Volatility is frequently used to describe the degree of risk or uncertainty associated with the magnitude of changes in a security's value. A security's value may potentially range over a wider range of values if its volatility is higher. This implies that the security's price can fluctuate sharply in either direction over a brief period of time. A security's value will not change significantly and will be more stable if its volatility is lower.
Quantifying the daily returns (% change on a daily basis) of an asset is one technique to gauge its fluctuation. The level of fluctuation in an asset's returns is indicated by historical volatility, which is based on past prices. This value is expressed as a percentage without a unit.
While volatility is a measure of that variance constrained by a given time period, variance reflects the dispersion of returns around the mean of an asset in general. As a result, one can report volatility on a daily, weekly, monthly, or annually basis. In order to better understand volatility, think of it as the annualized standard deviation.
Calculating Volatility:
Calculating volatility frequently involves utilizing variance and standard deviation (the standard deviation is the square root of the variance). Simply multiply the standard deviation by the square root of the number of periods in question because volatility describes changes over a specific time period.
Formula - vol = σ√T
Where,
• V is the volatility over a period of time.
• σ is the Standard deviation of returns.
• T is the number of periods in the future.
Let's say, for the sake of simplicity, that monthly stock closing prices range from $1 to $10. For instance, the first month costs $1, the second costs $2, and so on. Compute variance by using the five procedures are shown below:
1. Find the data set's mean. This entails adding up all the values and then dividing the result by the total. $55 is the result of adding $1, $2, 3, and so on up to $10. Since our data collection contains 10 numbers, this is divided by 10. This results in an average price, or mean price, of $5.50.
2. Find the variation between each data point and the mean. This is frequently known as deviation. Consider the following examples: $10 - $5.50 = $4.50; $9 - $5.50 = $3.50. This goes on down to the very first data value of $1. Numbers can be negative. These calculations are often carried out in a spreadsheet because we require each value.
3. The deviations are squared. Negative numbers will be removed as a result.
4. The squared deviations should be added. The result in our example is 82.5.
5. Divide the total number of data values by the sum of the squared variances (82.5).
The difference that results in this situation is $8.25. To calculate the standard deviation, one takes the square root. This comes to $2.87. This risk indicator displays how values are distributed around the average price. It provides traders with a sense of how much a price might vary from the average. 68% of all data values, when randomly selected from a normal distribution of prices, will fall within one standard deviation.
In our case, 95 percent of data values will be within two standard deviations (2 x 2.87), and 99.7 percent of all values will be within three standard deviations (3 x 2.87). In this instance, the range of values from $1 to $10 is evenly distributed rather than dispersed randomly along a bell curve. Therefore, the predicted percentages of 68%-95%o-99.7% do not hold. Despite this drawback, traders typically employ standard deviation since price return data sets frequently resemble a normal (bell curve) distribution more than in the example provided.
Note: According to the theory behind mean-reversion, the volatility of stock prices fluctuates around a long-term mean, with periods of high volatility frequently reducing and periods of low volatility increasing.
Types Of Volatility:
Implied Volatility
A key indicator for options traders is implied volatility (IV), also known as predicted volatility. As the name implies, it enables them to predict how volatile the market will be in the future. Additionally, this idea offers traders a mechanism to compute likelihood. It's vital to keep in mind that since it shouldn't be regarded as science, it cannot predict how the market will behave in the future.
Contrary to historical volatility, implied volatility, which reflects predictions for future volatility, is derived from the price of an option. Traders are unable to utilize previous performance as a predictor of future performance since it is implied. Instead, they must make an assessment of the option's market potential.
FACT-Trading in options has implied volatility as a crucial component.
Historical volatility
Historical volatility (HV), also known as statistical volatility, measures price changes across predefined time periods to estimate the fluctuations of underlying securities. Compared to implied volatility, it is the less used statistic because it is backward-looking.
The price of an investment will fluctuate more than usual when historical volatility increases. There is a current expectation that something will change or already has. On the other side, if the historical volatility is declining, it suggests that all uncertainty has been removed, and things have returned to normal.
There is a current expectation that something will change or already has. On the other hand, if historical volatility is declining, it indicates that all uncertainty has been removed and that things have returned to normal.
Although this estimate may be based on intraday fluctuations, it frequently gauges moves as the difference between two closing prices. Historical volatility can be calculated in steps of 10 to 180 trading days, depending on the anticipated length of the options trade.
Volatility And Pricing Of Options:
In order to determine how much the return on the underlying asset will fluctuate before the option expires, a critical component in options pricing models is volatility. Volatility results from regular trading actions and is represented as a percentage coefficient in option pricing algorithms. The value of the coefficient used will depend on how volatility is calculated.
Option contracts are also priced using volatility and models like the Black-Scholes or binomial tree models. Higher options premiums will result from more volatile underlying assets since there is a higher chance that the options will expire in the money when volatility is present. The implied volatility of an option is reflected in the market price because options traders attempt to forecast the future volatility of an asset.
NOTE-The market price of options contracts increases generally when volatility increases.
Additional Volatility Measures:
Beta
The beta () of a stock is one indicator of how volatile it is compared to the market as a whole. A security's overall return volatility is roughly estimated by its beta when compared to the return of an appropriate benchmark (usually the S&P 500 is used). According to price level, a company with a beta value of 1.1, for instance, has historically moved 110% for every 100% move in the benchmark.
In contrast, traditionally a company with a beta of.9 has moved 90% for every 100% change in the underlying index.
The VIX
The VIX, commonly known as the Volatility Index, is a numerical indicator of overall market volatility and can be used to observe market volatility. The Chicago Board Options Exchange developed the VIX as a metric to assess the 30-day anticipated volatility of the American stock market using real-time quote prices of S&P 500 call and put options.
It serves as a measure of the future bets traders and investors are placing on the movement of the markets or specific securities. A market is considered dangerous when the VIX level is high.
Additionally, traders can trade the VIX using a range of options and exchange-traded products, or they can price specific derivatives products using VIX values.
Illustration Of Volatility:
Let's say an investor is putting together a portfolio for retirement. S/he is looking for stocks with low volatility and consistent returns because s/he plans to retire in the next few years. S/he weighs two businesses:
1. ABC Corp. is marginally less volatile than the S&P 500 index with a beta coefficient of.78.
2. XYZ, Inc. is much more volatile than the S&P 500 index, with a beta level of 1.45.
A less risk-taking investor would choose an A Corporation for their portfolio because of its lower volatility and better short-term value predictability.
Some Tips On Managing Volatility:
Price swings and abrupt drops can make high volatility times upsetting for investors. Short-term volatility should be ignored by long-term investors in favor of maintaining the current track. This is because stock markets often increase in value over the long term. Your long-term plan may be jeopardized by emotions like fear and greed, which can be accentuated in volatile markets. Some investors may take advantage of market volatility to grow their portfolios by purchasing dips when prices are still reasonably low.
In order to manage volatility, you can also utilize hedging techniques, such as purchasing protective options to limit downside losses without having to sell any shares. But take note that when volatility is higher, put options will also cost more.
FAQS:
What Does Volatility Mean in Math?
Volatility is a statistical indicator of how data are distributed about their mean over time. It is determined by multiplying the standard deviation by the square root of the total number of time periods, T. It depicts this variation in market prices on a yearly basis in finance.
Is risk the same as volatility?
Although volatility is frequently used to describe risk, this is not always the case. Risk is the possibility of suffering a loss, whereas volatility is the size and speed of price movements. Risk increases if those higher price swings also raise the likelihood of losses.
Is it good to Be Volatile?
Depending on your risk appetite and the type of trader you are, volatility may be good or bad for you. Volatility can cause problems for long-term investors, but for day traders and option traders, it frequently means more trading chances.
Why is meant by High Volatility?
When volatility is strong, prices are moving swiftly and steeply in both directions.
What Is VIX?
The CBOE Volatility Index, or VIX, measures the short-term market volatility using the implied volatility of 30-day S&P 500 option contracts. The VIX often goes up when stocks are down and down when they are up. The VIX, also referred to as the "fear index," can therefore be used as a barometer for market emotion, with higher levels suggesting greater volatility and investor apprehension.
The Conclusion
Volatility is the amount and speed of price movement over a specific time period. Increased volatility in the stock market is frequently a symptom of investors' anxiety and concern. Because of this, the VIX volatility index is occasionally referred to as the "fear index." Nevertheless, volatility can present day traders with chances to enter and exit positions. Volatility plays a significant role in both the pricing and trading of options.