Opening gaps are the result of pre-market trading (or extended trading after the close the day before). Most brokers allow for extended hours trading, but you can't use market orders, only limit orders.
Hey thanks. So during the pre-market the best bid and ask are already at the price the market will open at?
NO. but in most cases premarket activity on LIQUID stocks will give you an idea where this stocks is about to open. it does not guarantee,that it will open at exact same price.
Yeah, that's how I came up with the question. So if the earnings come out better than expected then you can just buy pre-market with a limit and then it gaps up at the open you have instant profit? Is it that easy?
Gaps are heavily traded at the open and can run either way on pent up emotion. The best thing to do is to watch the price action during the early minutes (10-15 mins) and enter a position based on that. Stocks with high short interest that gap up on fundamentally good news (even something as idiotic as "XYZ only lost a billion last quarter instead of the expected 1.1 billion") have a tendency to run higher. But better to let the price action indicate that instead of just placing a bet on black or red.
That is a dangerous bet. You can have a gapped up open on a triple play earnings call (earnings, revenue, and guidance beat) and the stock could sell right off. I once had that happen to me and the selloff was immediate and continued to make new lows all day. If I was experienced back then I'd have watched the market's reaction at the open and taken what was clearly a "gap and crap" short.