All the analysts have spoken. Now the market gets to vote. Will it be up or down? The S&P futures opened on Monday evening at +8.50 and have declined to +4.50 but there is still a lot of darkness before morning. Anything can happen.

There should be a large amount of retirement fund cash hitting fund accounts this weekend and that money will be put to work over the next two days. I seriously doubt that will offset the sellers now free to take profits with the tax implications pushed another year into the future. There could also be a lot of window undressing by funds that held into the end of the year in order to exit the year fully invested.

All the major indexes with the exception of the Russell 2000 have broken support over the last three days. The Russell closed 1 point below support but that is minimal for a 1,350 point index. I expect the markets to continue lower and perhaps significantly lower.

The S&P closed at a 3-week low and well under support at 2,250. The S&P is almost guaranteed to retest 2,181-2,190 and that would be a decent correction and a great launch point for a Q1 rally. There are plenty of investors waiting patiently for a January dip like we had in 2016 and I think a lot will be disappointed. The dip buyers should be very active and that could prevent a major decline.

There will probably be some bargain hunting the week before the inauguration and then a real rally begin after a safe and successful event.

The Dow rally is very unsupported and with only 10 stocks carrying all the load to this level, a correction in only 2-3 of those stocks could cause a significant drop. However, the Dow industrials is just that, industrials and the current flavor desired by investors ahead of the Trump infrastructure spending and tax cuts. There should be significant dip buying in the industrials and that could keep them from a decline below 18,850.

The Nasdaq is already in decline thanks to the selling in the big cap techs. Two support levels have already broken and I would be very surprised if we did not see the 5,240 level tested again. I expect more selling in the big caps because funds have held some of those positions for years and there is a lot of profit to be captured.

The economic calendar for next week is focused on payrolls, ISM and the FOMC minutes. None of the reports should actually impact the market unless the numbers are significantly different than the forecasts. The payroll numbers are at risk for missing estimates because of the weak retail sector.

I would continue to be patient about entering new long positions. We do not know what will happen when the bell rings on Tuesday morning an even a positive open could end significantly negative. Remember January 2016 when the Dow fell more than 2,000 points in the first two weeks. The market does not need a reason to sell off and this year there are plenty of reasons why it should.



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IWM - Russell 2000 ETF - ETF Profile

The Russell ETF mimics the movements of the Russell 2000 Index with a 1:10 ratio.

The Russell 2000 has failed to break support but it was the strongest gainer in the post election rally. At one point, the Russell was up 20.1%. That suggests in a market decline it could also be the fastest decliner.

Analysts are in agreement that the markets will finish 2017 significantly higher with estimates as high as 25,000 for the Dow and 2,500 for the S&P. If the regulations currently stifling small business are removed and the tax rates changed to 15% as Trump has promised, this sector will show a major boom in earnings and could be the largest gainer in 2017.

I considered buying calls on the SPY, DIA, QQQ and IWM. I decided to use the IWM for the reasons stated above.

I am going to use a dip trigger on this position to enter the play. We already have a put position on the ISM and we will exit it at the same time this position is triggered. I am putting the trigger at $126 but there is no guarantee we will reach that level. The IWM traded at $115 just before the election.

I am using the August calls because they were only $1 more than the June strikes and we get two extra months. I do not expect to hold the position that long since the summer months are normally weak for the market. We can sell them in June with a lot of time premium left.

With an IWM trade at $126

Buy August $130 call, estimated premium $6, no initial stop loss.

If there is a trade you would like me to consider or you have comments on this newsletter please click the email link below.

Jim Brown

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Current Portfolio

Open Positions

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline. Any items shaded in blue were previously closed.

Current Position Changes

No Changes

Original Play Recommendations (Alpha by Symbol)

No Updates This Weekend

BMY - Bristol-Myers Squibb- Company Profile


No specific news. Shares were down slightly with the market late in the week.

The March option has been nearly worthless since the big drop in October. There is no reason to close the position just to gain a few cents. We have a March $65 call and the stock is at $59. March is a very long way off in biotech terms. This stock could be at $40 or $75 by then.

Original Trade Description: August 8th.

Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers chemically-synthesized drugs or small molecule, and biologic in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV); oncology; immunoscience; cardiovascular; and neuroscience. Its products include Baraclude for the treatment of chronic hepatitis B virus infection; Daklinza and Sunvepra for the treatment of hepatitis C virus infection; Reyataz and Sustiva for the treatment of HIV; Empliciti, a humanized monoclonal antibody for the treatment of multiple myeloma; Erbitux, an IgG1 monoclonal antibody that targets and blocks the epidermal growth factor receptor; Opdivo, a fully human monoclonal antibody for non-small cell lung cancer, renal cell cancer, and melanoma; Sprycel, a multi-targeted tyrosine kinase inhibitor for the treatment of adults with Philadelphia chromosome-positive chronic myeloid leukemia; Yervoy, a monoclonal antibody for the treatment of patients with metastatic melanoma; Abilify, an antipsychotic agent for adult patients with schizophrenia, bipolar mania disorder, and major depressive disorder; Orencia to treat rheumatoid arthritis; and Eliquis, an oral factor Xa inhibitor targeted at stroke prevention in atrial fibrillation, and the prevention and treatment of venous thromboembolic disorders. Its products pipeline includes Beclabuvir, a non-nucleoside NS5B inhibitor that is in regulatory review for the treatment of HCV; BMS-663068, an investigational compound that is being studied in HIV-1; and Prostvac, a Phase III prostate-specific antigen to treat asymptomatic or minimally symptomatic metastatic castration-resistant prostate cancer.

BMY is NOT a one drug company. On Friday, the stock fell from $75 to $62 on news a clinical trial on Opdivo for lung cancer without chemotherapy had ended without the desired results. More than $20 billion in market cap was erased from the stock because of one trial on a drug that is already successful in lung cancer with chemotherapy and in treating renal cell cancer.

This was not a case where all the patients in the trial died. It was simply a trial that did not work. Specifically this particular trial was hoping to prove the drug would be successful in patients with more than 5% of the PD-L1 protein in the tumors and had not received chemotherapy. This is a very broad trial. They hoped to be able to avoid the expensive chemotherapy process and the very painful side effects. It did not work in that application BUT it has already been approved for use with chemotherapy. The competitor drug from Merck, Keytruda, was tested in a smaller subset of patients with more than 50% of the PD-L1 protein. If BMY had copied that trial for Opdivo, the drug may have worked.

Bristol-Myers has a very strong portfolio of cancer drugs, HIV drugs, etc. Revenue is NOT going to change because the drug had never been prescribed for this specific patient demographic. Nothing changed financially for BMY. They had hoped a successful test would have added billions to annual revenue several years into the future but that was just wishful thinking.

There is an existing Phase 3 trial with Opdivo in conjunction with the drug Yervoy for PF-L1 positive patients. If that trial is successful, the Checkmate-026 trial will be immediately forgotten.

BMY is a good company. There is no material reason for a $20 billion market cap haircut. I am recommending we buy a rebound, not the dip because the dip could continue. We do not know where this panic selling will end although the $58-$60 level is strong support.

I am also recommending we buy a long-term option so this scenario can play out. If we are not filled at $62 then we can reevaluate next week and possible buy support at $58.

Position 8/9/16 with a BMY trade at $62

Long March $65 call @ $3.50, see portfolio graphic for stop loss.

Position 8/16/16:

Closed 9/13/16: Long Sept $57.50 put @ 63 cents, exit $2.01, +$1.38 gain.

DIS - Walt Disney - Company Profile


Rogue One topped the box office for the third consecutive week with a $64.3 million take. That pushes the movie to almost $800 million globally and this is only the third week. As a Dow stock, shares will go down when the Dow declines in January.

Original Trade Description: November 28th.

The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The company operates broadcast and cable television networks, domestic television stations, and radio networks and stations; and is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels, and ABC Family, as well as UTV/Bindass and Hungama. The company owns eight domestic television stations. It also owns and operates the Walt Disney World Resort in Florida that includes theme parks; hotels; vacation club properties; a retail, dining, and entertainment complex; a sports complex; conference centers; campgrounds; golf courses; water parks; and other recreational facilities. In addition, the company operates Disneyland Resort in California; Disney Resort & Spa in Hawaii; Disney Vacation Club, Disney Cruise Line, and Adventures by Disney; and Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort, as well as licenses its intellectual property to a third party for the operations of the Tokyo Disney Resort in Japan. Further, it produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings, and live stage plays; licenses trade names, characters, and visual and literary properties to retailers and publishers; publishes entertainment and educational books, magazines, and comic books; and operates English language learning centers in China. Additionally, the company is involved in the sale of merchandise through its retail stores, Internet shopping sites, and wholesale business. In addition, it creates and distributes entertainment and lifestyle content for interactive media platforms. Company description from

We have played Disney before with mixed results. The cord cutting at ESPN has been a problem for the last year. However, Disney is now bullish on ESPN again thanks to all the skinny bundles being sold by various cable and set top box providers.

Disney has a strong menu of movies in the pipeline. Moana was released last week and received great reviews. The tickets have already gone on sale for the Star Wars movie "Rogue One" that starts in mid December.

Nov 23rd, 2016 - "Moana"
Dec. 16, 2016 - "Star Wars Anthology: Rogue One"
Mar 17th, 2017 - "Beauty and the Beast"
April 14th, 2017 - "Ghost in the Shell"
May 4th, 2017 - "Guardians of the Galaxy II"
May 26, 2017 - "Star Wars: Episode VIII"
June 16, 2017 - "Toy Story 4"
Mid 2017 - "The Incredibles 2"
July 17th, 2017 - "Pirates of the Caribbean"
Late 2017 - "Thor: Ragnarok"
Early 2018 - "Frozen 2"
May 4, 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 3, 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Shanghai Disney has already had more than 4 million visitors in less than a year.

Earnings February 9th.

Things are going great for the entertainment company and the ESPN woes are being forgotten. Shares of Disney appear to be on the verge of a breakout over $99 and given the long advance ticket sales on Rogue One, the stock could see multiple weeks of gains in December.

Update 12/18/16: Shares spiked to a new 7-month high after Rogue One brought in $155 million over the weekend. The film is now expected to gross over $1 billion. This expands the Star Wars franchise into an entirely new spectrum similar to the Marvel movies. Disney can now produce a "Star Wars" movie every year with multiple story lines making their own direction. They have essentially doubled their Star Wars revenue stream. Bank of America named them to their U.S. 1 list on Monday of their best investment picks.

Position 11/29/16:

Long February $100 call @ $2.40, see portfolio graphic for stop loss.

HAIN - Hain Celestial Group - Company Profile


No specific news. Still no earnings date. The shares are holding their gains from the accounting announcement but they are not moving higher. They did receive another extension from their lenders giving them until February to report.

Once they announce an earnings date, we should see the shares begin to move higher. The stock spiked 12% on the "no wrongdoing" news.

Original Trade Description: September 5th.

The Hain Celestial Group, Inc. manufactures, markets, distributes, and sells organic and natural products in the United States, the United Kingdom, Canada, and Europe. It offers grocery products include everything from infant formula to instant soups. They offer yogurt, snack chips, pastas, organic products of all types, specialty teas, baby care, personal care items and hundreds of other products. The company sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, and drug and convenience stores in approximately 70 countries worldwide. Company description from

When Hain was scheduled to report Q2 results on August 15th, they warned they would miss prior full year guidance and they were going to postpone their actual Q2 earnings because of an accounting issue. The issue was the timing of revenue recognition. Normally they book sales as revenue when the products are actually shipped to the distributor. However, in the past quarter, they had made some concessions to some U.S. distributors that made them question if they should have recognized the income when the product was shipped or when it was actually sold.

They did not describe the concessions but from the comments above it sounds like they may have given them longer terms on payment or possibly offered distributors a discount if they would order more products. A concession could be similar to "If you take 25% more product we can lower the price 10% and give you an extra six months to pay." Instead of booking that sale when it is shipped they may have to wait until it is actually paid because distributors can, in some circumstances, send product back that they previously ordered. Hain could have done a consignment deal. "We will ship you X tons of stuff and you pay us when you sell it."

The key to all those scenarios is who owns the product while it is sitting in the distributor warehouse. If Hain still owns it because of a special deal with terms, then they cannot recognize the revenue until it is sold.

The timing of the revenue recognition does not alter the amount of the revenue, only the quarter when it is recognized. Hain said they did not expect any restatement to be material but the stock was crushed.

The company reported there was an independent review being conducted by the board's audit committee. The new earnings date was moved from August 15th to September 15th.

Whenever the term "accounting issue" is mentioned, everyone runs for the sidelines. Investors do not know if somebody just misplaced a decimal point somewhere or suddenly the company is going to admit it is another Enron.

I believe the sell off was way overdone. Look at the chart for the last seven months. The stock was up 65% and there was a lot of profit at risk. Investors were in such a state of shock the ran for the exits.

Hain has strong support at $35 and shares have fallen from $56 to $36. There is little risk unless disaster really strikes. I am recommending we buy a February call to give the shares time to recover and a September put, just in case there is more bad news. The September put expires the day after earnings so we will need to close it expiration Friday morning. If they have more bad news the stock will gap lower and the put will inflate. I doubt we will need it.

Update 11/22/16: We are one step closer to a big move in HAIN. The company said they had completed their review of accounting practices for the period in question and found no wrongdoing. The audit committee recommended some measures for future accounting to handle the issues in question. The company said it was moving forward to bring its reporting up to date and there would be a further announcement regarding the timing of the quarterly earnings report.

Position 9/6/16

Long Feb $38 call @ $3.90, see portfolio graphic for stop loss.
Closed 9/16/16: Long Sept $35 put @ $.60, expired, -.60 loss.

HD - Home Depot - Company Profile


No specific news. Shares down with the Dow last week.

Original Trade Description: October 3rd.

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself (DIY), do-it-for-me (DIFM), and professional customers. The company offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its DIFM customers through third-party installers. It primarily serves home owners; and renovators/remodelers, general contractors, repairmen, installers, small business owners, and tradesmen. The company also sells its products through online. As of December 31, 2015, it had 2,274 stores. Company description from

Home Depot is insulated from the Amazon competition. You cannot buy 2x4 boards, carpet or a 5 gallon bucket of stain on Amazon. With the housing recovery in full swing Home Depot has been fueling a massive remodeling binge. Customers trying to spruce up their homes so they can sell, go to Home Depot for the supplies. Customers that have just bought a home shop at Home Depot for items to remodel to fit their tastes. Customers just remodeling their own home to bring it up to date shop there as well. Home Depot now has online ordering with shipping to you on the smaller items or in store pickup for larger items. About 42% of online orders are now picked up in local stores. That also provides an opportunity to sell the customer something else as he wanders around the store. I am living proof that you cannot go into a Home Depot without buying something.

Same store sales have risen 4% or more in 15 of the last 16 quarters. In an interview with the CFO she said property managers were 3% of their customers but 40% of sales. That is an amazing statistic because once those professional managers are locked into a supplier like Home Depot they rarely change. The only other comparable big box is Lowes and they are always more expensive.

The CFO said the addressable market for their products in the U.S. is $550 billon and Home Depot only has 20% of that market. There is plenty of opportunity for additional growth. More than 50% of U.S. homes are over 40 years old. The company is targeting $100 billion in annual revenue in 2018.

Home Depot has bought back $2.6 billion in stock in 2016 with $2.4 billion to go. Their capital spending plans called for $5 billion for stock purchases. The company will also pay $3.4 billion in dividends. They have not added a new store in the U.S. in more than three years. They are using the expansion money to remodel one-third of each store every year. These "resets" are critical to keeping the stores fresh and implementing new marketing strategies.

Earnings Nov 15th.

Update 11/22/16: The company reported earnings of $1.60 compared to estimates for $1.58. Revenue of $23.15 billion bet estimates for $23.05 billion. Same store sales were +5.5% overall and +5.9% in the USA. HD guided for the full year for revenue growth of 6.3% and same store sales of 4.9% with earnings rising 15.9% to $6.33. Consensus estimates were $6.33 and $94.16 billion. The company had $3.59 billion in cash at the end of the quarter.

Shares declined after the news because investors expected stronger guidance because of Hurricane Matthew reconstruction. After two days of declines the stock rebounded to nearly erase the loss.

Position 10/11/16:

Long Feb $135 call @ $2.15, see portfolio graphic for stop loss.

IWM - Russell 2000 ETF - ETF Profile


The Russell collapsed back to 1,350 and closed just under that level. We could easily see $130 on the IWM tested this week.

Original Trade Description: December 12th

The IWM ETF seeks to track the investment results of the Russell 2000 Small cap Index.

The Russell is up +232 points or 20.1% in the last 22 trading days. It is grossly over extended and many small cap Russell stocks are up 30% to 40%. I understand the bullish sentiment that believes the economy will be better in 2017 but it will not be because of President Trump. His proposals will take months to get through the House and Senate and there is likely to be some major battles. Obamacare will not go away until 2018 or longer because it takes a long time to plan and execute a change that big. Lower taxes will not happen until 2018 because it will take months for both houses to vote on an acceptable tax bill. I seriously doubt they will change rates in the middle of the year. Any change will not occur until 2018.

I could go on but you get the picture. Typically, there is a honeymoon phase after a new president is elected. This phase has run its course. There are 13 trading days left in 2016 and any new highs are likely to be made before Christmas. After Christmas, investors may begin to worry and once into January and a new tax year, the selling could be dramatic. Do you remember January 2016? The market was not nearly as overextended as it is today and the Dow fell -2,180 points in just two weeks. Entering into a new tax year allows traders to capture profits and invest that money for another year before paying taxes.

Dow - January 2016

We also have the potential for an ugly inauguration or even a terrorist attack at the event. That potential will give cautious investors another reason to take profits in January.

I am recommending a long put on the Russell ETF.

There is also another trigger factor to consider. The Dow is approaching 20,000 and that could be a massive sell the news event given the big gains. Since the Dow could hit that level this week I am recommending we initiate our long put position in advance.

I have a similar put position in the Premier Investor Newsletter because every subscriber needs to be hedged against a potential market event over the next five weeks.

Initial support is in the $130 range.

Position 12/13/16:

Long Feb $134 put @ $3.37, see portfolio graphic for stop loss.

NFLX - Netflix - Company Profile


Netflix declined with the rest of the Nasdaq big caps last week but analysts are still lining up to raise their estimates on the stock. Earnings are just two weeks away so we need to be prepared to exit if we decide not to hold over.

Original Trade Description: November 14th

Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The company operates in three segments: Domestic streaming, International streaming and Domestic DVD. It offer members with the ability to receive TV shows and movies streaming content, including original series, documentaries, and feature films through a host of Internet-connected screens, such as TVs, digital video players, TV set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. As of October 17, 2016, it served approximately 86 million streaming members in 190 countries. Company description from

Netflix blew away earnings estimates on October 17th and spiked from $100 to $129 over the next week. Post earnings depression has been weighing on the sock but the decline was minimal until the Nasdaq 100 sell program on Thursday the 10th. Shares dipped to $115 but have held in that range for the last three days. I would like to think the sector rotation has run its course and portfolio managers still need some tech stocks in their portfolios.

I am recommending we risk $3 to see if Netflix can return to $130 by its next earnings report on January 16th. They opened in 130 countries last January and subscribership is finally exploding. Investors will be betting on another earnings beat.

I am using the March options because the strikes are round numbers. Most of the January strikes are odd numbers left over from the stock split. I am also using March so there will be some earnings expectation built into the premiums when we exit before the report. I am also using a wide stop loss because the net debit is only $3.25.

Update 12/18/16: Netflix announced that most of its shows are now available for downloading to a mobile device to be watched later when you are offline and not connected to the Internet. It requires the latest iOS or Android 4.4.0 operating system. You download the movies/shows before you travel and then watch them whenever.

Piper Jaffray increased their estimates for Netflix subscribers by 2020 by 35% from its earlier estimates for a 23% increase. In a survey 63% of subscribers said they would remain subscribers with 33% staying even if the prices rose 50% or more.

Position 11/14/16:

Long March $120 call @ $9.00, see portfolio graphic for stop loss.
Short March $130 call @ $5.63, see portfolio graphic for stop loss.
Net debit $3.37.

ZBRA - Zebra Technology - Company Profile


No specific news. Shares are holding their post election gains.

Original Trade Description: December 5th.

Zebra Technologies Corporation, together with its subsidiaries, designs, manufactures, sells, and supports direct thermal and thermal transfer label printers, radio frequency identification (RFID) printer/encoders, dye sublimation card printers, real-time locating solutions, related accessories, and support software worldwide. Its products are used principally in automatic identification (auto ID), data collection, and personal identification applications. The company also provides mobile computing and advanced data capture technologies and services, which include rugged and enterprise-grade mobile computers; laser, imaging, and radio frequency identification based data capture products; wireless LAN (WLAN) solutions and software; and applications that are associated with these products and services. In addition, it offers barcode scanners; specialty printers for barcode labeling and personal identification; real-time location systems; and related accessories and supplies, such as self-adhesive labels and other consumables, utilities, and application software. Further, the company provides maintenance, repair, product support, system installation and integration services, and other services. It serves retail, transportation and logistics, manufacturing, healthcare, and other end markets. Company description from

Zebra has been through a rough patch over the last year with shares falling from $120 to $46. They struggled with earnings and went through a restructuring process. During that process they had to restate earnings and reallocate expenses. Now that the process is over they are well on their way to being successful again.

Over the last quarter they paid off $90 million in debt and plan to pay down $300 million for the full year. In November they announced the shareholder friendly Western Digital CFO, Olivier Leonetti, had joined Zebra. That is a big plus for Zebra in both expectations for capital return to shareholders and confirmation there are no lingering problems in the accounting department.

Zebra was originally focused on bar code printers. They have expanded into readers, RFID tags and scanners, networking equipment and dozens of other products. Last week Zebra was named by The Channel Company to their 2016 Internet of Things Top 50 list. This shows how far Zebra has come from being just a printer company.

They reported earnings in mid November of $1.43 that beat estimates by 2 cents. Revenue of $904 million barely missed estimates for $906.4 million. For the current quarter, they guided for earnings of $1.65 to $1.85 and that was above analyst estimates.

Earnings February 14th.

Shares closed at a 52-week high on Monday with a 3% gain. Normally that would spike option premiums but Zebra is not a high profile tech company and the option I am recommending only rose 40 cents.

With a lot of blank space on the chart to return to the 2015 highs, we could see a sustained move as funds hunt for stocks that are not already overbought.

Position 12/6/16:

Long February $85 call @ $2.80, see portfolio graphic for stop loss.

Prices Quoted in Newsletter

At Option Investor, we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.

The prices quoted in the newsletter are the end of day prices in most cases.

When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.

For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time readers are able to get a better fill than the opening print because of market maker bias at the open.

For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.

All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.