Let’s call this a “Fool’s Game” trilogy.
Three days experimenting with buying calls or puts (calls in this instance) according to the rules of the “Fool’s Game” suggested here for day trading SPY options on a lucky November 13th last year in this link: IS It A FOOL’S GAME?.
The basis of the entire strategy is the simplicity of going long calls or puts (what’s been called the “fool’s game”). The cost is clear since it is simply the cost of the option itself with no shorting margin requirements, no covered stock scenarios, no spreads or complicated attempts to calculate delta and neutralize theta and try to fill the four legs of iron condors both going in and trying to get, and no more god knows what else…
This is this simple: buy calls if you believe it’s going up, puts if you think it’s going down.
The results trading SPY options, either in the money or at the money on the nearest expiration — Monday, Wednesday, Friday. were astounding last year, and earlier this year (that system is currently experiencing its biggest draw down since I began tracking and trading it). Both because of the “astounding” and the “biggest draw down”, I decided to take a look at stocks using the same criteria as outlined in this link: DayTrading Stock Options two days ago.
The criteria for selecting AAPL, FB, BABA, NFLX and TSLA for the trades is noted in that link.
The first day of this experiment, Tuesday this week, netted 13.2% in trades that triggered in all five of those stocks (I highlighted TSLA on a chart in a post below), and netted 37% on trades is four of the stocks yesterday (see charts in the post below). FB options did not trigger a trade that day.
Very fine returns for the system, and much to be learned in its context.
Today (see the muddle of charts below), the trades in calls lost 8% on options traded on four of the stocks.
Still, a good three days overall.
But as I mentioned there was much to learned in context – a logical intraday stop on the NFLX trade (the first blue candle as seen on the NFLX chart below), would have cut the total loss to only 3%. Stops, needless to say, like with all systems, need constant examination and re-examination.
I looked into this because I’d been told day trading stock options can’t be done. This week may be an outlier but as far as this “trilogy” of day trades has gone, it has been done.
(click on the chart for a larger view)