Stock Markets Exposed
Day trading with options?
Do you have some advice about day trading with options? Holding options for some hours -not minutes-, say, buying in the morning and selling before the close. How much the volatility varies during a typical day? Already have some experience swing trading index-ETFs stocks and options.
Public Comments
- One big drawback trying to day trade options is the bid-ask spread. If you were to try it I would suggest using one of the 13 option series trading in the penny increment pilot program. The pilot program consists of the following securities: IWM - iShares Russell 2000® Index QQQQ - Nasdaq-100® Trust Shares SMH - Semiconductors HOLDRs GE - General Electric Co. AMD - Advanced Micro Devices Inc. MSFT - Microsoft Corp. INTC - Intel Corp. CAT - Caterpillar Inc. WFMI - Whole Foods Market Inc. TXN - Texas Instruments Inc. A - Agilent Technologies Inc. FLEX - Flextronics International Ltd. SUNW - Sun Microsystems Inc. Implied volatility (IV) does not usually change much during a typical day. Events which have a big impact on IV usually come out as press releases while the market is closed. Without significant changes in IV or time until expiration, you will be unable to get much help from vega or theta in your trading. That means you will have to rely on delta, and possibly gamma, to make a profit. Since the delta of an option is always less than the delta of an equivalent stock position, and the bid-ask spread is almost always greater for the options than for the stock, it takes a larger move in the stock price to break even using options instead of stock for day trading. I am one of those who believes it is difficult to make a profit day trading stocks, and since it would be even more difficult to make a profit day trading options, I would not recommend day trading options to anyone. I recognize the large percentage profits possible day trading options, but a large percentage of a small number is still a small number. That means to make a large profit you would need to risk a fairly large amount. I am not comfortable with that risk profile in my portfolio.
- If your going to day-trade I would not limit myself to hours, sometimes 10-20 min. is all you need for a 10-20% profit but at other times you may need 5 hrs. If you use the Qs which now trade in .01 increments you can make .02 -.04 profit on a trade rather easy. You will need very cheap commissions to do this. You will need charts that can receive streaming data and set you indicators in such a way that will enable you to see movement that you can capitalize on. I sometimes only trade with the longer term trend(puts in a downward trending market, calls in an upward trending market). This enables me to wait it out longer if I'm wrong. Chart reading is part science and part art. You'll have to get a feel for it. Volatility doesn't vary much in a 'typical' day. http://www.coveredcallswins.com/
