Options spread day trading strategies
We like to explore, educate, and share ideas involving options trading. Come along with us on our journey to demystify the complex yet rewarding world of options trading. Many people think day trading is gambling: I agree—yet I day trade the SPY almost every day.
I day trade very little capital, and I direct the profits into my less risky accounts. So why bother if day trading is gambling? Simply put, I can increase my odds of a successful return using money management techniques. I fully expect to some day lose all of the money in my day trading account—the goal is to multiply the capital I started with many times over before that happens.
This strategy works because I day trade with a tiny percentage of my entire investment portfolio, and the amount I am willing to risk remains constant—meaning that I do not attempt to compound my returns; profits are removed from the account right away.
Already this year I have doubled the money in my day trading account not bad considering that we are only 8 weeks into the year. This is what I mean by money management: Though day trading is gambling, you can leverage technical indicators and your own expertise to enter and exit trades with higher success rates.
I only trade the SPY, which Options spread day trading strategies have monitored for so long that my gut often predicts how it will move. I use weekly options to add leverage and reduce the capital required. This option normally has a delta around. I try to be in a trade for 40 minutes max. Sure, sometimes a trade lasts a few hours, but I always close the trade at the end of the options spread day trading strategies no matter what.
I like to enter my trades around options spread day trading strategies I enter a trade knowing whether the SPY is bullish or bearish on that day, and I never buck the trend: I make only one trade per day. If I am trading more than that most likely I am either cocky and think I can make more money or I am trying to fix a loss trade—both are bad ideas. If the conditions are right I scale into a trade up to 4 times the dollar-cost average. I only scale down, never up—meaning I buy more as the price drops, and when I close the trade I sell everything I do not scale out.
Doing so protects options spread day trading strategies in the case of an upward spike in the market and frees me from being glued to the computer screen. The SPY is options spread day trading strategies crazy volatile and almost always I have some money left if a trade goes against me. Plus, I never risk more than I can handle losing. Stop losses are bad because sometimes the market really has to fall before it can pick back up.
I rely on my gut to time my exit one of the reasons I have options spread day trading strategies automated this trading style. If a trade goes against me I simply wait for an uptick and use that opportunity to close the losing trade. Almost every day some buyer comes in and pushes the SPY up or down faster than normal in one big trade, but if not I sell at 3: I have set these rules for myself over many years of day trading.
From the start of the day the market was bullish—notice how the chart is pushing up rather than down—so I was looking to trade calls. Notice that the MACD histogram bars clearly resemble rolling hills. I benefitted options spread day trading strategies a big seller coming in right before I entered the trade, pushing the SPY down. If this event had happened later I might have scaled in and purchased more calls, but on this day one open and one closing trade did the trick.
Most winning days play out just options spread day trading strategies this example. I just painted you a pretty rosy picture of how you can generate outsized returns day trading. The thing is, every day is different and a few bad days will certainly wipe out your account. But if you adhere to the overflow method you can use day trading profits to juice the returns of a less risky trading strategy.
Day trading is also a good way to stay engaged with the market every day and sharpen your trading skills. And, of course, day trading is a fun rush. Join our newsletter today for free. You won't regret it! But How Do You Trade? I buy options spread day trading strategies calls and puts—no fancy spreads. The times in the graph are PST. Like what you read? Options Cafe Newsletter Get our latest news delivered to your inbox.
I know that options allow you to control a large amount of stock options spread day trading strategies with a small investment.
Put and call options are some of the greatest trading vehicles ever created. Options spread day trading strategies day-trading the options is not one of those strategies. Options are simply the wrong tool for that particular job, like trying to cut a board with a tape measure, drive a car to an island or cook a steak in a microwave. The first issue is that of trading liquidity and bid-ask spreads.
For almost all options, the bid-ask spreads, as a percentage of their value, are much too wide for day trading purposes, although not a problem for longer duration trades. We enter and exit trades with precision timing as the options spread day trading strategies of the asset touches small-scale demand and supply zones. This can be very effective and lucrative, but it requires quick trade entries and exits.
When we buy an option, if we want to get it done that quickly we will have to pay the asking price for it. Later, when we sell it, we will have to accept the bid price. When we have the time to wait, we can avoid paying the full spread by using limit orders. In day trading there is no time for that. That alone pretty much rules out options as a day trading vehicle. Also, the thing that makes options unique is that there are three separate sets of forces acting upon their prices at all times.
These expectations can and do change from moment to moment. This causes option prices to inflate or deflate, completely separately from the effect of stock price changes. Sometimes the effects of current stock movement on the one hand, and of the expectations of future stock movement on the other hand, both act to push option prices in the same direction.
But sometimes they act in opposition. Finally, there is the issue of time decay. This puts steady pressure on option prices both puts and callswhile not options spread day trading strategies the underlying stock at all. So, even the best analysis of probable stock price movement alone does not give us enough information to trade options effectively, most especially over very short time frames. We also need to assess market expectations.
Are those expectations too high, making options options spread day trading strategies and therefore a good bet to sell short? Or too low, making the options an especially good buy? Answering these questions is not especially difficult, and we have great tools to do just that. However, the effects take longer to play out than a few minutes or hours. We can make the three option forces into three separate profit centers when we use them correctly, as taught in our Professional Option Trader class.
Use the right tools for day trading, and use the finely-tuned instrument of options in the environment where they can really sing. Options November 10, Day Trade Options? Disclaimer This newsletter options spread day trading strategies written for educational purposes only.
By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter.
Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.