The 315 in-the-money put, expiring today, netted 237% on the day-trade buy signal near the SPY open with a sell of half at up 215% and the second half at up 260%. Had the trade been held to the close, it would still have netted approximately 220%.
See the tweets (for time stamps) and the chart below:
There are so many options strategies in the stock market the head spins – a straddle, a strangle, a naked and/or a covered put and/or call, a calendar, a condor, an iron condor, an iron butterfly (isn’t that a rock band?) and any combination of any of these for hedging purposes, for capital appreciation or preservation, for gambling. Mind boggling.
Buying options, just plain buying a call or a put, everyone will say is a “fool’s game.”
Regardless of whether a trader buys calls or puts on index ETFs like SPY or QQQ or IWM, or buys options on stocks, there are only three things that can happen – the option goes the trader’s way (good), or the option goes against the trader (bad), the option goes sideways with price decay over time (also bad).
Two out of the three possibilities for the option buyer are losers. What fool would want to play that game?
But is it really a fool’s game? Like everyone in options trading says?
For day traders it doesn’t have to be. If the trader is persistent, discipline and experience, it almost never is.
Let’s take SPY options as the prime example — very liquid across multiple strikes, tight spreads, hardly any time decay on a trade for only a day, a stop-loss is close by and immediate, and the profits, if there is a trend for the day, can be substantial, even rather astounding.
Also great for scalping on any time frame intraday but that, as they say, is another story.
Again, the key, as always, is persistence, discipline, experience, and an entry signal the trader is comfortable taking.
Today, again, was a spectacular day for the strategy.
(click on the chart for a larger view)