Day Trading Options is a bad idea. Anyone else?

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Here is another interesting thing about day trading options versus giving the trade 2 to 3 days to play out.
Per every 100 trades that I complete (Sell or Stop), here is the time it takes to create a modest (+25% to +30%) profit:
Trades that complete on Day 1: 44
Trades that complete on Day 2: 45
Trades that complete on Day 3: 11

That means if I truly day traded and everything got closed out at the end of Day 1, my W/L record would be less than 40%. (My average W/L is approx. 70%)
A two day hold would "improve things dramatically," and a 3 day hold even better.

Risk Management:
I use approximately 10% of my account for each trade, but only -2.5% of my account is at risk because of the Stop.
 
Thanks for sharing! One question that came up when I was reading your thread was - well if he puts out limit orders to enter position away from the market, how many trades are being "missed?" Then I thought that maybe "missing" these is the reason for high win ratio in the first place. Sorry if I missed this, but what happens when you are not filled? Do you just wait for another signal?
 
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qlai said:
Thanks for sharing! One question that came up when I was reading your thread was - well if he puts out limit orders to enter position away from the market, how many trades are being "missed?" Then I thought that maybe "missing" these is the reason for high win ratio in the first place. Sorry if I missed this, but what happens when you are not filled? Do you just wait for another signal?
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That's a really good question and you may not like the answer but I have learned to live with it.
Because I am looking for a discounted entry with respect to the closing price of the option,
I only average about 7 to 8 trades a month. Your correct, that is part of the higher W/L.
I do use a mean-reversion strategy within a defined trend. That gives me 2 trade elements working for me. The system tries to buy an intraday dip in the option price and sell at or near its previous day's closing price, and still be trading in the direction of the overall short term trend of the SPY.
 
jeffalvinson said:
you may not like the answer
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I like all your answers ... their are very generous :) Thanks!

P.S. When you said you had a programmer code this strategy and his/her reward was "fully understanding the system," I was like ... wow this guy must be very good salesman. LOL. Good for you.
 
I am a very experienced swing trader who has been trying options also - it is extremely hard. You need to understand how options prices change depending on so many factors:

1. Most options unless they are ITM are not worth more than a 50% move for each point the stock moves - and if not ATM they can be worth far less.

2. The safest time frame is 45 to 20 days out - otherwise strange things happen.

3. Never risk more than 5% of you account - you can be amazed how quickly things move, especially on expensive stocks near the money on expiration day.

4. Trading the week of expiration is cheaper but also very risky due to a last-minute effect called Gamma which can utterly change the expected direction of your option. Especially in the last hour, etc.

5. Keep your sizes small - a too large options trade gets noticed and a market maker will come in and fleece you. Never risk more than say $2k at once.

Go to TastyTrade.com and take their lesson for newbies (it will take a week), but at least it will start to make sense.

Bottom line, even after 3 months of really trying I am still struggling to make money with them, I have tried all kinds of strategies. The "selling premium" strategy works but it is slow and takes a high tolerance for going in & out of the money. Also - the more complicated your strategy the harder it is to manage - in fact, it is better NOT to manage option strategies because the commissions will kill you. Either take the loss (and sell all the legs) or wait it out to become profitable.

Good Luck.
 
good for the broker bad for you.
worst for you if you're a buyer of options.
great for going broke slower if that is the objective.
 
I've been day trading options for almost a year. Lost money almost daily most of that time until the last 3-4 months. Now it's gotten closer to break even for me. Some days, I'll open and close 4-7 positions and will be up on 80% of them and up for the day. It's the very few that kill me with big loses that will even it out.

I only trade SPY and I do better trading the closest expiration day or one expiration later. I rarely buy a week out and never a month out. I buy options probably 95% of the time, or I just won't trade. I haven't mastered selling yet and usually lose those trades than win.

I've stopped trading other stocks because my attention gets split too much and the past has proven I get destroyed. I used to apply my SPY behaviors to other stocks, but learned I can't and that each stock is a different animal that dances to it's own unique music. I'm pretty familiar with the music that SPY dances to and just stick to it.

Once I've become more consistently profitable, I will venture out, but not right now. Not for a couple more months.
 
jeffalvinson said:
The reality of trading options like this over decades, is you have to look at "annual overall profit," and not weekly or monthly profit. You have to accept a few months a year of no profit or even small losses. You have to think about the long haul, year and year, decade after decade.
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I found the same results swing trading options. After 6 1/2 years, my profits/losses were very lumpy. But the overall profits for the 6 1/2 years has been good.

That said, I think 6 1/2 years is too short a duration to say I have a working model. I could very well be fooled by randomness and the raging bull market.

Best wishes to you.
 
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