Options day trades on SPY

Who could have predicted that this would happen? If you could you would have bet the house on it and then headed to the South Pacific or wherever your dream vacation is…doc


I had a detailed explanation and chart on the Technical Trader’s Sanctuary Board on where I thought SPY was headed. I have been saying since early August in that thread that I thought SPY looked bearish. Okay, so it looked like we were breaking to the downside today so I entered a put (9/22, Put 440, 1.30) at around 9:45 this morning. Looking good so far. I’m thinking that the market as a whole is pessimistic about the FOMC meeting today and tomorrow and I may get out right before tomorrow’s statement.

If the Fed raises rates at all the market will tank and I’ll be sorry I got out. If they keep rates the same then everything will depend on the the hawkishness or dovishness of their statement. Dovish would likely cause a rally, but I doubt they will be dovish. Hawkish could cause more declines, but they have been hawkish all year so it may have no effect. If they cut rates the market will rally hard, but I think a rate cut is about impossible.

That all said, the main reason I would get out before the statement is that the volatility premium is highest right now and right before tomorrow’s statement. As soon as the statement is made then the premiums will drop and options will be worth less. Getting out prior to the statement is probably the safest play.

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One thing I will say. I often play a strangle on the FOMC. I usually do it right after the statement mostly because of the high premiums, but also because often the initial move is wrong and I want to see it first. Now, if the level of anxiety or anticipation is very high and it seems clear that we are looking at a huge move (either way), then I might play it before FOMC meeting. I do not feel this time that a particularly huge move is coming so I might do it after but I’ll wait to see the reactions. The last time I did it after the FOMC statement and I did pretty well.

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Do you think that a rate hike would be devastating to the banks and financial sector? I’m afraid of a rate hike after the recent banking disasters…doc

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I’m no banking expert, but I thought that I heard that banks are helped by higher rates. The overwhelming majority of their income comes from lending money, and the higher the rates, the greater their returns. I do not think that higher rates reduces their returns because people will stop borrowing. Borrowing is a necessary part of existing and living, both for companies and for people.

That said, I do not think there will be a Fed rate hike, at least not this time. Again, not that I’m any kind of expert. :slight_smile:

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You and I think alike on this. I don’t think it had anything to do with the loans, but the inverted yield curve and bank profits while dealing with money being withdrawn by its biggest depositors. Here is an SVB article on what happened there…doc

Silicon Valley Bank: how interest rates helped trigger its collapse and what central bankers should do next (theconversation.com)

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Interesting, Doc. See, I learn something new every day! :slight_smile:

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So when I entered my put I didn’t put in a trailing stop because I didn’t want it to close before today. I put in a hard stop. It traded down all morning, then came back close to my entry at the end of the day. Today, it gapped up, but small so I stayed in, and it traded almost perfectly sideways until the FOMC results. This kept me in until after the announcement despite my initial plan to exit before. After FOMC it went immediately down tried to come back up, but eventually went down all afternoon. I got out within the final 15 minutes because I didn’t want any end of day craziness taking away my gains.

The trade details were:

Put 440 1.30 entry, exit at 2.25, profit 0.95 or 73%

During my trade, SPY moved down from about 442.50 to 439.50 which is a 1.6% move. So trading options instead of the actual ticker gave me about 45x the profit.

P.S. Latest info, the end of day craziness ended up being selling rather than buying so I could have made an extra 0.40 had I stayed in to the very end. But the thing is it is impossible to predict the last minute movement and SPY has lately been apt to gap up the day following a big decline so I still think it was the safest play to exit when I did. Letting these missed opportunities affect my trading is the surest way to sabotage success. I know, having said that we are now sure to gap down tomorrow. Funny how that always seems to work. I’m sure all traders have experienced where things always seem to go the opposite of what you do… :slight_smile:


I think I already said this in the beginning, but I want to make sure everyone knows. These great profit percentages do NOT equal great riches. I set up a very small account with my brokerage, just for these fast day trades (many same-day, no more than 2 days). As I said in the beginning, I started with $130 only because one of the options I was considering was around $1.30. This last put trade was for $1.30 and I only bought one contract because I couldn’t afford 2. So the 73% profit was only $95.

Now, if I were a professional trader and I was doing this to make a living, then I would start with a much bigger account and I would buy many more contracts and multiply the profits. My day trading account is currently sitting at $259 after 13 or 14 trades which overall is a 99% profit after basically a week.

Part of me is sorry that I didn’t put in more money, and I may do this, but I’m still not completely sure. The problem is that day trades have more requirements than short term trades, the biggest one being a minimum account of $25,000, which I would up to $50,000 to account for inevitable losses. My broker is already sending me warnings that they have been letting this go, but are about to restrict my account unless I fix my account with more money. I’m not yet sure that I want to do that. Don’t get me wrong, I would love to trade all day every day, and I’ve done it before in a past life. But I’m also realistic enough to understand that fast trading, while potentially lucrative, is also inherently risky. Oddly enough, that risk avoidance mantra that makes me a more successful trader could also keep me out of doing it more. :slight_smile:


Yes, well darn. Had I held I could have closed this morning for around 250% profit. :frowning:

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The thing is I really did the best thing closing out my position for 95% profit because it was a small position of only one contract. If I were a professional trader and had bought 10 contracts, then I probably would have closed half which would guarantee a nice profit (because the half that I don’t close almost cannot expire worthless), and held on for a possible bigger gain.

Oh well…

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Looking at the SPY options, that might not be so easy to do for your kind of strangles. Seems like the in the money call options mostly have VERY low volume and open interest. If you tried to trade 10 of many of them today, you would have a tough time (tough = you would have to repeatedly increase your bid price until someone bit, and when exiting the trade you would have to repeatedly drop your ask price until someone bites). It’s not like the MUCH more liquid out of the money call options that have huge vol/OI.

Interestingly, the puts on SPY all seem to have large vol/OI, regardless of in the money or out of the money.

Hey Mark,

I’m not sure exactly what strikes and expirations you are looking at, but in my experience the options volume on SPY are the highest in the whole market. Higher than even the biggest stocks, and higher than other ETFs (like QQQ, which is probably 2nd to SPY) or even indexes like SPX. 10 contracts on SPY are pretty easy to get from what I can see.

Now, you are saying “in the money,” and yes in the money calls have a bit less volume than out of money, but that’s because most speculation occurs out of the money. Almost all of my options trades are out of the money, sometimes far out of the money because I don’t really care if my options are ever in the money because I will be out well before that. Traders trade out of the money because they are hoping that the stock price approaches their strikes. Out of the money options are also a lot less expensive. Also, yes, I am not surprised that the volume on puts is higher than calls right now because it is a typical put-call ratio when there is market fear of a decline.

The other thing I will say about volume is that I almost always try to play with strike prices that are more round. I’ve found that people are more likely to play with strike prices divisible by 10 or maybe even 5. So, I like strike prices like 440 or 445 better than 441 or 443.

As far as this specific trade where I was talking about buying 10 contracts, the specific contract was SPY 440 Sept 22. On the day I entered that specific contract had a volume of about 60,000. On the day I exited (yesterday), there was a volume of about 80,000. I think that 10 contracts would have been exceedingly easy to deal with.

And it gets worse. My profit right now would be closer to 400% had I stayed in.

The thing is I have to keep remembering that safety is more important than capturing gigantic wins. At the time that I closed my trade 15 mins from the end of the day, I could not have predicted what would have happened in the final minutes. It was selling all the way to the close, but it could easily have been buying. The final minutes is impossible to predict. Sure we had a 2.94 pt gap down today, but on the other hand the day after the last FOMC in July was a 3.51 pt gap up and if that had happened it would have wiped out everything I had made.

My conservative approach to preserving profits and limiting losses is always going to cause me to miss some big opportunities. My only hope is that it will at least keep me mostly profitable, which is actually better than the overwhelming majority of traders.

I just need to keep remembering this. On days like today it is hard to do.

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At the close, profit would have been 569%. Somewhat better than the 73% that I booked (I said 95% profit in one of my posts, but it was 0.95 profit out of 1.30 which is 73%).

Although it feels really weak out there, I don’t think at this point I would look to buy another put. I’m more likely to look for a bounce, I’m just not sure when. Looking for RSI and Chande divergences, but it often happens that the price needs to hit at least a couple new lows, no matter how slight, before it will give a trade-worthy bounce. I would give it some time to settle down. Trying to catch a bounce at the open is like trying to catch a falling knife! If it gaps down and immediately takes off, then I’ll just have to miss it then look for the put to come back down to earth. I really don’t anticipate a very strong day tomorrow in the end because traders are still uncertain and many may not want to hold long into this weekend.

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Do you think the SP 500 looks like a head and shoulders now? I remember you don’t place much value in that pattern. Do you think that since the SP 500 dipped below its expected move this week and the chart pattern looks like its flag down that it will continue down below 4300? I’ve read that when the indexes are all positive that 70% of stocks are positive, but that when all the indexes are negative 90% of stocks are negative. I’m weighing to buy puts tomorrow but a strangle might be a smarter play…doc

No, head and shoulders is not one of my favorites, but yes, the pattern we have could be one of those. In a classic head and shoulders, there are a few items to consider in addition to the shape. The volume heading into and including the first shoulder is typically high because in a bull market the lay investors (the majority) always jump in and invest late. The head generally has less volume even though it reaches a higher high. Finally, the closing shoulder has even less volume. The thing is these characteristics are more common and easier to see when you are dealing with a single stock. When you are dealing with a huge index it’s more difficult to analyze volume, but I think I can see (barely) the proper volume trend in the SPX chart. You really have to use the SPX chart and not the SPY chart. The reason is that at least on SPX the volume is based on the volume for the 500 stocks within the S&P 500. On SPY, the volume is based on traders playing in SPY and this volume is largely arbitrage and not really indicative of supply and demand of the actual 500 stocks.

Here’s the chart:

SPY Daily H&S 9-21-23

The arrow shows the target from the head and shoulders. In this case it is around 4050.

As far as tomorrow goes, it is possible that we are not yet done going down, and we may still drop. But I’m actually thinking that we may hit a couple more lower lows but probably not low enough to make significant gains using puts. I think that the more profitable play will be a call after these lows to catch the bounce.

I think that we have already had our big move, and I’m not so sure that we are ready yet for a strangle because we might just bounce around and consolidate for a bit. But I could be dead wrong. We might still crash even lower than we did the last 2 days, or we might bounce back up to pre-FOMC. It just doesn’t feel to me like there is currently strong sentiment either way.


Yes, well I missed the up move today, so I’m looking for one or two higher highs to enter a put. I may just get nothing…

Looks like nothing. I never felt like I had a good setup for a put and missed the down move which exactly equaled the low of the day yesterday. Technically we are in a Chande divergence for an upside reversal, but at this point I’m just going to watch and not enter any positions. Generally speaking, unless I am making a longer term options trade with expiration dates weeks or even months away, I really don’t like holding options over the weekend because I immediately lose 3 days worth of premium. I have done it before, but I do it knowing that I am losing profits over the three days.