UPDATED 3/01/21 — TODAY’S SPY 384call up 107%, on the close up 85%
This chart is set to display return per $1K in play in the white flag or horizontal line on the right axis (the #1Kdaytrade on Twitter), and the #10Ktrade in dollars in the green flag or horizontal line on the right axis, which also makes for easy percentage calculations.
THE TRADING STRATEGY
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 day-trade scalping with the weekly calls and puts on various liquid stocks. Must be stressed the key to trading the weekly stock option is liquidity in order to avoid spreads too wide to turn around a profit during a single day.
One last note: again, the key, as always, is persistence, discipline, experience, and an entry signal the trader is comfortable taking.