First off, I believe stock price is purely a function of supply and demand, so I don't think it's technically correct to say stock price would "begin trading" at any price.
Still the reason why I'm asking this question is that, while I had assumed that premarket stock prices would begin trading roughly at the previous day's afterhours market closing price at 8pm (barring no significant news), I just realized that some investors try to exploit the "inefficiencies" that they believe occur because premarket stock prices would reset to the previous day's closing price at 4pm (even if stock price had changed during afterhours market).
For instance, Lithium Americas (LAC) stock price increased from $20.79 to $24.48 (+17.7%) after hours last Friday following the news that the U.S. regulators approved Lithium Americas' Nevada lithium mine. I've seen some investors trying to purchase the stock below the afterhour price (say $22-23) yesterday at 4am premarket because they believed the stock price would reset to Friday's 4pm closing.
Does this make sense to anyone, and if so, would this be an exploitable strategy? As I mentioned from the beginning, I believe I don't think premarket price resets from anywhere as long as there is no seller willing to sell. But I'm curious because apparently there are some folks trying this strategy...
Submitted January 19, 2021 at 09:23PM by strictlycontrarian https://ift.tt/39LjEtr
