options strategy.. pls help me to improve

[turco_directo]

I'm working on a new options strategy, I need folks to improve my odds.

-picking few potential volatile stocks before market opens (using stocktwits trending stocks, CNBC pre-market news, DOW Index upgrades) and go with the one above 20 SMA daily
-no complicated option legs, no spreads. only one way put or call
-Only first one hour of the morning enter and exit strategy
-no profit target, only timing based performance. Enter at 9:33 or 9:35 and exit by 10:27 am.
-3 times a week, my acct below 25k. no carry over, close position same day
-avoid trading on fridays, triple witching, 4 trading day weeks
-No ETFs at all means. I don't want to trade ETF options since %70 of the time they chop and end up eating your delta.
no stock under 40 $ a share

What you folks think? I'm looking positive helpful inputs

thanks

 

[water7]

have you live trade it with stocks-only?
how is it going?

--
for intra day trading, it depends on the magnitude of the actual move vs what is being implied on your premium
so you may or may not profitable using shorter term options vs stocks-only

-No ETFs at all means. I don't want to trade ETF options since %70 of the time they chop and end up eating your delta.

is it true that individual stocks don't chop around and eating your theta?

 

[vanzandt]

I'm working on a new options strategy, I need folks to improve my odds.

-picking few potential volatile stocks before market opens (using stocktwits trending stocks, CNBC pre-market news, DOW Index upgrades) and go with the one above 20 SMA daily
-no complicated option legs, no spreads. only one way put or call
-Only first one hour of the morning enter and exit strategy
-no profit target, only timing based performance. Enter at 9:33 or 9:35 and exit by 10:27 am.
-3 times a week, my acct below 25k. no carry over, close position same day
-avoid trading on fridays, triple witching, 4 trading day weeks
-No ETFs at all means. I don't want to trade ETF options since %70 of the time they chop and end up eating your delta.
no stock under 40 $ a share

What you folks think? I'm looking positive helpful inputs

thanks

Its a great idea, but here's the problem I've found with this...
In the first hour or so on the volatile stocks of the day the bid ask spread is going to be quite large and unless you make a jam-up call on the days direction, your price to get in and get out of the show will eat up your account. If the bid/ask spread was a few pennies you'd be golden.. but thats never the case.

Do this: Pull up the NFLX option chains at the open this AM and watch the puts/calls that are about $2 in the money and you'll see what I mean. The spreads are horrible. As the stock finds its direction for the day these slowly narrow. If your time frame is VERY short... which it should be when trying this .....the time value priced into the option won't be a problem no matter how great.... but that is ONLY if you plan on getting out in like an hour or two at the most. In order to get out that quick and make money, you better have nailed the direction of a BIG move.

Here's what happens... you enter a position somewhere between a large bid/ask spread and you'll see that your price doesn't move as the clock ticks even though the underlying is moving in your direction. Then human nature kicks in and you hold the position waiting for a bigger move. Thats when all that time value starts killing you. It can be done... but like I said... you have to nail a BIG directional call early. And to this end, I hate to say it, but it goes from smart strategy to luck/gambling.

 

[truetype]

I'm working on a new options strategy, I need folks to improve my odds.

-picking few potential volatile stocks before market opens (using stocktwits trending stocks, CNBC pre-market news, DOW Index upgrades) and go with the one above 20 SMA daily
-no complicated option legs, no spreads. only one way put or call
-Only first one hour of the morning enter and exit strategy
-no profit target, only timing based performance. Enter at 9:33 or 9:35 and exit by 10:27 am.
-3 times a week, my acct below 25k. no carry over, close position same day
-avoid trading on fridays, triple witching, 4 trading day weeks
-No ETFs at all means. I don't want to trade ETF options since %70 of the time they chop and end up eating your delta.
no stock under 40 $ a share

What you folks think? I'm looking positive helpful inputs

thanks

What's the strategy? What's your edge? Do you buy or sell, puts or calls, how/when/why?

 

[mushinseeker]

What is the rationale underlying these rules? For example, not using spreads exposes you to greeks you might not want to be exposed to. IF you want to trade direction, spreading is best for you isolate vega. I assume you don't want to trade Fridays due to theta? . Google Jeff Augen- he posits that MM take out a chunk of theta thursday afternoons.

 

[Jones75]

What you folks think? I'm looking positive helpful inputs

Here's something for you to consider:

Find a stock or two that have high historical vol, with daily volume exceeding its 3-month average and you think short term gyration is at hand.
Now look to buy weekly OTM options very late Thursday (between 3 and 5 minutes before close). Of course direction, your choice. (research very important)
On Friday, close out your position within an hour after opening, profit or loss. No guarantee, but you'll be entering the trade at the lowest possible price.

 

[mushinseeker]

turco.. I would listen to this advise. I think Jones just dispensed something truly worth backtesting. (thanks for giving me more work Jones75! ...lol) I like that Thursday entry..

 

[Jones75]

turco.. I would listen to this advise. I think Jones just dispensed something truly worth backtesting. (thanks for giving me more work Jones75! ...lol) I like that Thursday entry..

If you do try it, make sure the weekly OTM option has some decent OI or vol and a very tight spread. And when closing out, look to reduce that first hour to half. Especially if you're comfortably in the money, because the MM will prey on you like a chop licking hyena.

 

[HappyTrader]

-Only first one hour of the morning enter and exit strategy
-no profit target, only timing based performance. Enter at 9:33 or 9:35 and exit by 10:27 am.
-

thanks

It looks like you are trying to profit off opening trades. Are you trying to anticipate a direction as well?

If you are SELLING puts you could open yourself to a big loss if the opening trade results in a 2%+ move to the downside (something a limit sell order might not be able to trigger quickly enough to protect you).

If you are BUYING puts/calls, at least you cap your loss but now you are hoping there is enough of a change during the opening trades to recoup your investment and commissions.

In the opening trades you have a few things working against you:
1) The % change could be quick enough that you can't trigger a trade fast enough.
2) Unless you are dealing with a few common symbols, the option liquidity may not be there resulting in losing a lot on the bid-ask spread, or spending so much time trying to find a good price that you lose out on timing.
3) If you are selling, the IV could spike as the underlying changes resulting in a much higher cost to close the position.

And, finally, depending on your situation, the commissions could consume a lot of your profit. And you may have to pay taxes on anything left over.

 

[ironchef]

Its a great idea, but here's the problem I've found with this...
In the first hour or so on the volatile stocks of the day the bid ask spread is going to be quite large and unless you make a jam-up call on the days direction, your price to get in and get out of the show will eat up your account. If the bid/ask spread was a few pennies you'd be golden.. but thats never the case.

Do this: Pull up the NFLX option chains at the open this AM and watch the puts/calls that are about $2 in the money and you'll see what I mean. The spreads are horrible. As the stock finds its direction for the day these slowly narrow. If your time frame is VERY short... which it should be when trying this .....the time value priced into the option won't be a problem no matter how great.... but that is ONLY if you plan on getting out in like an hour or two at the most. In order to get out that quick and make money, you better have nailed the direction of a BIG move.

Here's what happens... you enter a position somewhere between a large bid/ask spread and you'll see that your price doesn't move as the clock ticks even though the underlying is moving in your direction. Then human nature kicks in and you hold the position waiting for a bigger move. Thats when all that time value starts killing you. It can be done... but like I said... you have to nail a BIG directional call early. And to this end, I hate to say it, but it goes from smart strategy to luck/gambling.

Agree.

And at market open, most likely you will buy near ask and sell near bid so whatever your edge will be eliminated by the MM.

I normally don't day trade options, too many variables for a small retail option trader like me to manage. Day trading the underlying is hard enough, day trading options is even harder. Also, when I trade, I avoid trading at market open - too much uncertainties.

Too many variables and too much uncertainties means those are the pro option traders playground and I for one won't stand a chance.