#DayTrading $SPY #Options – Buying Calls and Puts

The contents of this blog entry was first posted here a year or so ago about buying SPY calls and puts for day trades.

I am copying the contents of that post here in order make it easier for me to find. Plus, the current volatility in the market makes this strategy better than ever.

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.

But buying options…

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.

Again, I must stress the key, as always, is persistence, discipline, experience, and an entry signal the trader is comfortable taking.

I have included the chart below from today as an example – the SPY 278 in-the-money call, expiring Friday, up 106% to close the day trade. (I will probably edit this out of this post, along with the chart, as time goes by.)

(Click on the chart for a larger view)

#MarketTiming – another day, another dollar or two

As market sold off it gaped-up gains Tuesday, the NYMO and NYSI did not turn down.

Today showed why traders always want to be on the same side as those two breadth indicators.

It’s been a great bounce and so far there’s not sign it’s done, except we’re running into a holiday in a bear market. I haven’t studied those occurrences but I would not be surprised if there’s a stall tomorrow.

No telling what more three days of news can bring during a world-wide pandemic.

Anyway, some highlights in this spectacular bounce suggested to start on on the open of March 23rd in this post: Reading history on the #MarginDebt chart. Since then UPRO, the SPX leveraged ETF, is up a whopping 60%, TQQQ is up 52%, TNA 45%; among the leveraged sector ETF’s I follow, ERX is up 82% and SOXL 74%.

Spectacular numbers.

So spectacular in fact that going into the weekend traders might want to move up to the edge of their seats to insure nothing goes wrong with the profits grabbed in this fierce bear-market rally. Investors can go on praying there’s more to come after the harrow plunge they’ve just seen. I hear a lot of happiness among those who did not buy and hold and bought sometime in the past two weeks and a lot of hoping from those blistered by what the hope is a “black swan” interruption of last year’s bull market.

I still believe this is a bounce to be slaughtered because of the unraveling of margin debt discussed in that link above but I guess we’ll see in the fullness of time.

In the meantime, this was my play for today, the SPY 267 in-the-money call expiring today, stopped out once but finished up 149% for the day trade.

Like I said above, another day, another dollar or two…in a spectacular week.

(click on the chart for a larger view)

#MarketTiming – this week’s up leg UPDATED

In Sunday’s post below it was said:

“Monday will be important but I’m going guess… The market is going to pop and take a leg up for at least a couple days this week.”

Got the pop. Got the couple of days up. Anyone sell the open today?

The market gaped on the overnight futures again but a turn-around-Tuesday did not another Monday make. Unlike Monday there was no follow through on the gap today. Although the bull-market-hope-to-be buyers made a game try to bring it back mid-day after the first slip and slide down, but the bear gave a little push with his paw to bring on a true turn-around Tuesday.

There were reversals all over the board.

That mid-day sway was rather nerve wracking for the 274 put that triggered on my SPY day-trading system but, all’s well that ends well. It finished with a 33% gain.

(click on the chart for a larger view)

As for the day itself…

Hmm…. That big black thing on the daily chart does not…well, that does not look good, but the NYMO and the NYSI continue to rise so there is still some hope for the bulls.

(click on the chart for a larger view)

#MarketTiming looking for a swing leg up…UPDATED.

This is a results update for this post yesterday:

#MarketTiming – looking for a swing leg up…

#ShortStrangles – $TSLA marching through March for a 62% gain…

Day trading weekly short strangles on TSLA, even as the market swung wildly both up and down, has turned out a steady 62% gain for March.

The total cash gain per options contract for the month was $10,969, using a maximum margin of just under $18k. Every week had a double-digit gain.

See the green-colored weekly totals and the final yellow-colored cumulative total for the month on the table below.

Each short strangle had a hard %200 stop loss. If stopped out the strangle is rewritten for new strikes calculated on the stop’s price level. Each trade is closed at the market at the end of the day to eliminate overnight risk.

The same short strangle strategy can be applied to any volatile stock with liquid weekly options – TSLA here, but other prospective stocks would include AAPL, NVDA, BA, ROKU, GS, FB, WYNN and NFLX. No doubt others from time to time depending on market conditions and an individual stock’s story (for instance, BA of late).

The reference for this strategy is this link: $TSLA – Day trading short strangles for simplicity’s sake.

There are many complicated options strategies but this blog strives to apply the idea that simple is best, or at least better…

Remember this information is presented here, and throughout this blog, for entertainment purposes and as my personal journal for trading and tracking strategies, and should not in any way be construed as investment advice.

(CLICK ON THE TABLE FOR A LARGER VIEW)

$TSLA – #DayTrading #ShortStrangles for a steady 15% weekly gain

Despite being stopped out twice during the five days last week, TSLA short strangles once again had a double-digit gain, 15%.

This strategy since introduced here six weeks ago, in early February, on TSLA, a volatile stock with liquid weekly options, has had a double-digit return every week.

The cumulative gain is now 76% for the six weeks on a maximum margin requirement (as calculated by the CBOE) of $20,000 per contract.

The values on the table below for last week’s short-strangle trades are per contract.

The reference for this strategy is this link: $TSLA – Day trading short strangles for simplicity’s sake.

(Click on the table for a larger view)

$TSLA – Day trading short strangles for 12% weekly gain

Choppy week in TSLA short strangles but still netted a 12% gain.

In the five days of the week the initial strangles were stopped out every day except Monday and twice on Friday, forcing a rewrite of the strikes each time.

The reference for this strategy is this link: $TSLA – Day trading short strangles for simplicity’s sake.

(Click on the table below for a larger view)

$TSLA – Day trading short strangles for simplicity’s sake

I’ve been told repeatedly on Facebook and Reddit that no one can day trade options on stocks. No one?

Is that a flat-out challenge or what?

So I set about to see if it could be simple enough to be possible. Simple because it’s a day trade, and because I’ve been chasing the simple in trading forever. To my mind Henry David Thoreau -“Simplify, simplify, simplify’ – is the greatest stock market guru of all. And I wanted it to be systematic so it could be done day in and day out as rhythmically as a perfect golf swing.

First, a few simple basics.

When one buys an option in the stock market there are only three things that can happen and two of them are bad for the buyer. It goes your way right away which is good. It goes against you, which is bad. Or it goes sideways and time decay eats away the premium paid, which is bad. It’s the same selling an option but much better because the time decay is on the seller’s side. If the stock goes sideways, the seller keeps the premium on the option. In other words, if one buys an option, one has a 66% chance of losing money; if one sells the option, it’s a 66% chance of making money.

So, obviously, it’s best to be on the sell side…

Simple as that?

Not so fast, if one does this without owning the stock, it’s called being “naked”, being naked a call, naked a put. The trouble is the margin requirement on those are often times so high one might as well be trading the stock. One might have to put up as much as $20,000 on a day trade with the prospect of making a couple of hundred bucks. A lot of risk, it would seem, for not much return. And it’s a day trade so there’s not all that much time to have the stock go your way or sideways.

No wonder the guy knocking me on Facebook is certain day-trading options of stocks can’t be done.

He’s wrong, of course, or I wouldn’t writing this.

On the table below I’ve taken the margin requirements calculated by the Chicago Board Options Exchange (CBOE) and applied to day trading short strangles on weekly TSLA options for every trading day for a month. A short strangle is selling both an out-of-the-money call and an out-of-the-money put.

To illustrate the day trade:

Let’s take the last trade on the table, the 3/13 short selling the 540 call and the 520 put while TSLA itself was at 530.89. This is a trade on the day of the weekly expiration.

The maximum gain on this trade would have been $1,511 if TSLA had stayed between 540 and 520 by the end of the day. But TSLA vaulted to 546 on the market’s last-half-hour rally cutting the gain at the close to $810, a 53% gain on the actual credit received for selling the two options. Not bad. However, the margin requirement was $11,217 on the naked sales for the expiration day so the gain was actually 7.2% on overall margin for the day. Also not bad.

This is a strategy that can be used on a any prominent stock — AAPL, NFLX SHOP, NFLX BA, NVDA — with decent options liquidity and worthwhile price swings. And it’s a strategy that can be used week in and week out without ever having to buy the stock itself.

On the table below, there are the details for each day trade on TSLA (peruse if you choose), but what’s most important are the weekly totals in green boxes for each week, the net cash for the week and the percentage gain; and the final gain for the past four weeks in the yellow stripe, $11,478, generally a 57.3 gain on margin.

Because this is a day trading strategy the same cash margin is being used over and over again anew each day and although it is most often a lower requirement day by day, the percentage gain here is calculated on a flat $20,000 margin requirement…for simplicity’s sake.

(click on the table for a larger view)

#ShortStrangles on #Stocks – day trading the weekly #options

Interesting week last week in the strategy to day trade short strangles on various stocks.

The basic idea with this strategy is limit risk while taking advantage of daily time decay on the calls and puts expiring on each Friday.

The trades are taken 30 minutes into each day and closed at the close. The protective stop is a 5-minute close either above the upper strike or below the lower strike. If a protective stop is hit then both sides are closes on the stop.

Since the opposite strike hedges the losing strike, a stop at that point is usually a breakeven or small loss for the trade, and sometimes, depending how long during the day the trade has run, yields a small profit. When the stop is hit and the trade closed, if there is a enough time left in the day, the strangle can be rewritten and reentered at the next strike levels.

Last week the short strangles were on TSLA, NFLX and SHOP. See the table below for the day-by-day trading.

TSLA stopped out on Thursday for a 3.6% loss on the margin requirement (see the table) but the reentry has a 2% gain before the end of the day, mitigating the initial loss.”

What is obvious is how steady the week was for logging profits. Since this is day trading, the trades are using roughly the same cash margin over and over each day. As a result, although the daily gains for options trading may be relatively small, the accumulated profits for the week can have a notable return.

Margin requirements can vary day by day, strike by strike and, I supposed, broker by broker. Those listed here are calculated on the margin calculator at the CBOE. For presentation purposes, I’ve calculated the dollar amount on these trades as per each contract.

The short TSLA strangles gained 18.79% for the week, SHOP gained 6.52% and NFLX gained 11.03%. See the green blocks on the table to those results.

In the last green block, I averaged the margins across the week and across the three stocks and came up with the $11,857 number. The highest requirement was the $20K per contract on TSLA at the beginning of the week (that would also be the minimum required to trade this for the week).

The total profit for the trades was $4,759 for the week, a yield of 10% on the three strangles combined.

That’s what I meant when I said above it can have a “notable return.”

(click on the table for a larger view)

$TSLA – #DayTrading options on stocks for less risk and more gain.

TSLA announced earnings on yesterday’s close and gaped up 50 dollars a share today, closing finally at 640, up 63 dollars.

And to think not that long ago the company and its founder, Elon Musk, was the mockery of the market.

After cruising most of last year below 300 a share, it broke above 300 on October 25th and hasn’t looked back.

I wrote this back in August of 2017, giving a long term heads up on the stock:

Is TSLA the best long term investment since AAPL?

But this post is not about that.
This is about options trading. And more specifically day trading stock options.

I wrote about this strategy for the first time in August of last year but primarily in this post in November:

#ShortStrangles on #Stocks – stealing money weekly in cash

That post was about holding the weekly options to week’s end and did not yet consider day trading. Still, as that post indicated there was a 5.6% gain on the margin requirement for the stocks that week. If consistent each week, that would add up to something for the year.

But could it be consistent when the risk on a short strangle strategy is unlimited while the gain is locked in on the credit received? Probably not. Take TSLA today – that 50-point gap on the open would have killed any short strangle, and it would have been even more devastating by the end of the day.

So day trading…

See the chart panel below. The top row of charts in the panel are last week’s four days (Tuesday through Friday) since the holiday. The lower row is this week through today (Thursday).

In the last eight days, day-trading short strangles in TSLA has gained 16.7% against the margin required each day. The margin fluctuates a bit each day depending on the call strikes and puts strikes executed but since the strategy is a day trade on the weekly options the margin remains roughly the same each day.

On the charts the negative numbers in the white flags on the lower right are actually the pluses on the shorts per contract, and the positive numbers are negatives.

For example, Tuesday (the chart second from left on the lower row) the loss was $365 per contract while today (the last chart on the right on the lower row) the gain was $660 per contract. All total, those profits equal $2,012 per contract over the eight days, give or take a bit for commissions and slippage. That’s about 16.7% against an approximate $12K margin requirement day in and day out. With the risk limited to a single day (with stops), there is likely much more consistency in the trades.

I’ve been by a lot of pundits on the internet, so-call options experts parading the common wisdom, day trading on stocks can’t be done (to say nothing about SPY which I’ve written about many times now).

And of course, it takes persistence and discipline and experience to day trade options on anything but in at least this case with stocks, the common wisdom is, again, suspect.

P.S. One final note on TSLA today.The trade was made after its earnings were in the market. Note on the chart for today (lower row, far right) how flat the price action was for the rest of the day as time decay racked up an approximate 5.5% against margin, a 54% gain on the actual money, per contract, put into the trade.

(Click on the chart panel for a larger view)