Pre-Market Trading Profit?

Question

From my understanding, pre-market trading involves limit orders that occur between 8 am and 9:29 am. So say there is an M&A deal announced and the target company (which was trading at $10/share) is being bought for about $15/share. The company's stock price is going to go up in pre-market trading.

Now say at 8:01 am, the ask spread is 12.01, so i put an order to buy at 12.05. The trade will probably be executed since my bid is a couple cents higher than the asking price. Also say that I put in a sell order position at $13/share. At say 9:01 am, it hits $13/share, and so then my shares would get sold.

Hypothetically, I would have made $1/share i bought before the market even opened. Had this been real and all the events occurred as they did, would this strategy have worked? Or am I missing something here?

Answer 1

<<<Hypothetically, I would have made $1/share i bought before the market even opened. Had this been real and all the events occurred as they did, would this strategy have worked?>>>

Yes, but it would have only made $0.95/share instead of $1.00/share.

<<<Or am I missing something here?>>>

(1) If a buyout at $15 per share is announced it is very unlikely you will be able to buy the stock for $12.05 per share.

(2) If  you sell something for more than you paid for it, you will show a profit. It does not matter if it is in the Pre-Market or not. However, without the merger announcement there is absolutley no reason to assume the stock will go up in price after your bought. Even if it does go up, it might not go up to your selling price before it goes back down again.

(3) If there is a merger announcement saying the stock is to be bought at $15 per share, and you actually were able to buy it for $12.05 per share, that would tell me that most investors believe the merger will not take place. Remember it will have to be approved by the stockholders and possibly by the government before it is final. If the deal is called off the stock could drop to well below $10 per share very quickly.

Answer 2

Yes  you made a dollar a share. Ive done that in after hours trading.