Options day trades on SPY

I don’t normally do this with my options trades. Normally I’m looking for more significant moves over the course of days, or maybe weeks. But one of the reasons that I love SPY for Options trades is that the potential reward is great for relatively small moves. I recently calculated while watching that SPY could move less than 1/4 of 1% (0.2%) and if you picked correctly on your option then you can make a 30%+ profit right away.

So today I told myself, okay, lets try that out. Lets do some really quick day trades with relatively tight trailing stops and see what happens. Just for this trial I started with a small amount of money ($130) which was determined mostly because one of the options I was looking at with was around $1.30. I placed a total of 12 trades (6 round trips) and used trailing stops of 0.20. Some of my trades stopped out pretty quick, while others went for a while for good gains. My very first trade had a trailing stop of 0.15 and I felt it stopped out too quickly for a small profit so I adjusted to 0.20.

At the end of the day I had $196 out of the original $130 which is an overall return for the day of around 51% (50.77%). I may try this again some time soon and if it keeps working I may do it with more money.

The key to this strategy is to correctly use stops. I made myself put the stops in right away before I knew what was happening. Don’t watch it first and try to use your brain to make decisions because you will be wrong most of the time. The most successful traders use such a strict system.

Yes, you want to think about it before you place your entry, and strive to have the best entries that you can. However, no matter how talented you might be in judging the near term direction and ideal entry points, what matters more is the strict discipline of your system. Traders who have a strict system to limit losses do better than traders who have excellent stock knowledge but use a loose system. Traders who just randomly place trades without even looking, but follow a strict loss prevention strategy do better than traders who are stock experts but who do not use hard stops preferring to use their intuition.

The thing is, if you strive to day trade where you place many trades in the same day, the movement of the stock prices is actually pretty random. Nothing that you or the market thinks about fundamental factors of the company or even the economy has any meaning. The only thing that matters is that you buy low and sell high and limit your losses when the market is moving against you. When I put in my 0.20 trailing stop on option prices then the most I can lose is 10% or 20% if I’m wrong, but If I’m right I can gain 30%, 50% or 100%, or more.

Lastly, when I talk about loss prevention on options trades, I am generally speaking of straight buys of calls and puts. There are more complicated options strategies that already account for variable results such as the options strangle that I often use where you don’t really care which way it goes because either way makes you money. Yes, you can lose money on a strangle if the prices do not move at all, but there is really no way to set a stop for this.


Okay, here’s a chart of all my trades. Also, I must not have seen the right numbers, my account now says 194 not 196 so it was actually more like 49%.

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Hi Derek, sorry, what options did you buy? strike price/ dates?

And did you mean to say you made 12 separate trades - like 6 calls, each bought 1 at a time ( like buying a call for $1.30 and sold at $1.50; repeat and rinse 6 times)…that is smart, as that means your decided max budget is $1.30 and you play with just that.

I guess you would have paid close to $ 9 for the 12 trades of option buys/ sells…still worth it, as the profit of $ 20 is more than sufficient to cover the $1.20 each round trip.


I was using Options on SPY. All of them were Sept 15 expiration. This is very short, but I fully intended to be out today no matter what so it doesn’t matter how much time to expiration. I have generally found that short times give you the best profit bang for the same movement.

12 trades was 6 round trips. So, if I bought a call then sold it to close the trade, that’s two (2) trades. I looked at the chain of contracts to pick the approximate value and the max was near 1.30 (a put) but my first trade ended up being a call for closer to 1.00. That one was a Call 448. The next was a Put 445, then Call 448 again, then Put 444, then Call 446, then finally Call 446. The last trade was the most expensive because the price was higher than it was on the trade before, but at that point I had more money to play with. I probably shouldn’t have even entered that last trade, but I was disappointed at being stopped out and banking on a last minute buying surge. The surge happened, but at the very end there was big selling that stopped me out. In the future I will always bail out in the last minute or two because that last move is impossible to predict.


One thing I will point out which goes back to the very first paragraph of my original post: My most profitable trade was 0.39 profit on a 1.01 put entry. That’s a 38.6% profit ($39 on $101). SPY itself moved from about 447.10 to 445.70 or 1.40 points which is a 0.31% move and the profit if you had shorted the stock.

In other words, using options on this play, I received more than 100x the profit percentage. In order to make the same $39 profit by shorting the stock, you would have to short $12,500+ of stock with the same entry and exit. I think I prefer $101.



The best thing is that you did this in one day, 49% profit in just hours…doc

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Yes, 49% in one day is excellent. But that might be an outlier. I need to find out what is a more consistent result.

One thing I tell myself is that even if I could make $39 every day using only $130, that really isn’t enough to make a living. $390 every day with $1,300 is more livable. Or $3,900 every day with $13,000 would make you rich. Now the problem is that there is rarely enough volume trading stock options to be able to scale this infinitely upward. But the one nice thing about SPY is that there is more volume there than on any other single stock, even the biggest giant (AAPL). SPY has more volume and open interest than SPX. You can easily scale to $1,300 (10 contracts), and possibly even $13,000 (100 contracts). Generally, the closer you are to in the money, the more volume you have.

And again, SPY seems to have a bigger profit bang for the buck (% profit vs % move). Looking at the options chain for SPY vs any other stock will show you this. SPY seems better than QQQ to me as well. Now, it could be that SPY has better profit for the same move, but this could be because SPY is less volatile than a single stock. During the same period of time when SPY moves 0.5% maybe AAPL moves 1% so you could have made more profit trading AAPL. But personally, I think I prefer less volatility. I mean, I don’t think that I need more than 49%.


You seem to have a sound philosophy…doc

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Hi Derek. Thanks much for the discussion :slightly_smiling_face:
WRT the stop loss.
You input an auto stop loss limit into the option order form?
Or a stop loss market?
And it’s a trailing stop loss.
I assume you opened the "close position " link for the option, and chose the “stop market” or the “stop limit” based on the option premium (as opposed to the price of the underlying stock)?

I’m not very familiar with the mechanics of inputting stop loss orders. The few times I’ve used them with stock positions, I’ve been less than happy with the result.

Might you give an example using numbers?

0.2 is 20%?
So if the premium is 0.50, then the stop loss was set at:
0.2 * 0.5 = 0.1
0.5 - 0.1 = 0.4

And you set the stop loss to trigger when the premium dropped to 0.4?

I want to be sure i understand this. Thanks!


The stop was a trailing stop of 0.20. That would be 20 cents, not 20%. If the price of the option itself (lets say you bought it at $1.30 which is really $130 for one contract), drops by 20 cents then you are stopped out. So if it goes your way and gets to a high of $1.50 then pulls back to $1.30 then my stop would be triggered. That actual price at exit will likely not be $1.30. This is because there will be a bid-ask spread and you will likely eat the spread. My stops are always at market, I do not try to set a limit. My problem with limits on stops is that when my stop is triggered, then I want out right away. If I set a limit price, it may or may not execute as the price falls away.

Now, the thing is that every broker does stops a little different, so I cannot tell you exactly how to place the order with your broker. What you are looking for is called a “Trailing Stop”. If you are investing in stocks for the long term, you may set stops that are a specific stock price and not trailing. This is not really very useful if you are day trading unless you plan to modify the stop constantly all day.

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Okay, I did the same thing today entering 6 day trades. The results were not very good. I kept getting stopped out for as little as -0.03 and as much as -0.25. My first trade was positive for +0.32. Overall I was -0.24, but my last trade was left open with a very small +0.03.

What happened on the last trade was that I was so frustrated at getting stopped all day when every loss was ahead at one point and would have closed ahead had it not stopped so I adjusted my trailing stop to 0.30 from 0.20. My last trade at the end of the day was a put that had a nice max profit, but then consolidated at the end. The trailing stop never hit, and I was wanting more than the few pennies I would have been left with had I closed at the last minute so I let it stand. Hoping for some kinda small gap down tomorrow.

I’m more likely to go back to the 0.20 trailing stop rather than stay with 0.30.

It doesn’t look like I’m going to get much overnight movement. SPY is +0.13% in after hours. The biggest S&P company that reported after hours today was Adobe. They went down immediately then went positive, then went negative. They are currently negative (-0.87%), but are not affecting the averages much. They are not exactly a gigantic company like AAPL or MSFT, but we’ll have to see how their results affect the psychology of traders for other companies. We may not really see that (if anything) until tomorrow.

Well, they dropped much further later in after hours, then down even more in pre-market. S&P/SPY is down in pre-market. I should have a good exit on my open trade. Hopefully, my results from trades entered yesterday will now be profitable.

Okay, so I closed my open trade for +0.70 (on a 1.17 entry price – 59.8% profit) which made me +0.46 on yesterday’s trades. So that means I started with 194 and ended with $240 and 23.7% profit for the day. I see from the current chart that I could have made more money on that final put if I had stayed in, but I stopped out and I’m satisfied. If you loosen your system out of greed you just end up losing in the end. In the long run it’s better to maintain a strict system. I’ll take 20% wins all day long while limiting my losses to around 10% with a strict system rather than loosen my system to get 100% gains.

I’m taking a break today, mostly because my broker is sending me messages saying that I am breaking the rules. Evidently, trades take some time (days) to fully clear and when I day trade I’m selling before the buy is fully cleared which causes problems with my balances. I have multiple accounts with my broker (retirement, long term, trading, and now day trades that I just set up with a tiny balance the other day). I think this means that I need to maintain a higher cash balance in the day trading account as a buffer to cover trades that are not yet settled. They say that they’ll let this go for a short time (few days), but if I don’t fix it they will restrict my account. Anyway, I need to take some time to calculate what exactly I need to do. It may mean that I need to open an account with a broker that caters more to day traders.

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Try Interactive Brokers. They seem to cater to that type of client. Either way you will need sufficient margin in the account(s).

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Excellent point and smart too…doc

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I believe that all brokers have the same requirements for day trading. I have gotten the same messages from Schwab in the past from day trading stocks/ETF’s while buying and selling options…doc

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I’ve had accounts with IB before and I liked them. Way back in the day (90s and early 2000s) they had the best deal around in terms of commissions in the pennies. Today, zero commissions is much more common. My favorite back in those days was TradeStation which I may try again.

In the early 2000s, I completely got out of trading and liquidated all my accounts for cash in order to make a down payment on a house for my growing family (I have 7 kids). I recently got back into it by accident after a ~20 year break. My employer at that time (I no longer work there) required that I open an account with Fidelity because that is how they did their 401K. I told them I wasn’t ready to start contributing to 401K and they told me it doesn’t matter because they contribute to it no matter what I do. When you open a Fidelity account you get everything, not simply retirement, and Fidelity had a promotion where if I fund a brokerage account they will give me an extra $150 at that time (I saw more recently that they were offering $100…not sure if they still are). So now I’m trading with Fidelity which is okay, but not my favorite. But I wasn’t really trading too often so I didn’t care too much, but if I’m going to start trading on a daily basis, I will likely open a day trading account with another broker and adequately fund it for that purpose.

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Yesterday morning I put a buy in for ARM at a limit of $60. Schwab executed the trade right when ARM started trading for $56.10 and thats why I like Schwab…doc

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Yes, well I still believe in this philosophy, but I will also point out that had I held onto my put I would now be looking at a gain of 327%. Darn!

In order to stay in, I would have had to set my trailing stop at a whole dollar. That’s just way too much. That’s how you can turn a decent profit into a big loss.

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