Best directional SPY options trading strategy

Discussion in 'Options' started by turco_directo, Oct 9, 2016.

    • I only trade the SPY, which I have monitored for so long that my gut often predicts how it will move. No joke. When you’re hyperfocused, investing with your gut can be effective.

    • I use weekly options to add leverage and reduce the capital required. I always trade at the money call or put that’s going to expire at the end of the week. This option normally has a delta around .50, which means that if the SPY moves a $1.00 the option will increase (or decrease) in value by $0.50—a 50% return if the option you are buying costs $1.00.

    • I buy only calls and puts—no fancy spreads.

    • I try to be in a trade for 40 minutes max. Sure, sometimes a trade lasts a few hours, but I always close the trade at the end of the day no matter what.

    • I like to enter my trades around 1:00 pm EST when more often than not trading is flat; the news from the morning has already been traded on, and many traders are taking a lunch break. By 1:30 or 2:00 the SPY is moving and shaking again.

    • I enter a trade knowing whether the SPY is bullish or bearish on that day, and I never buck the trend: if the SPY is pushing up I trade calls; if the SPY is going down I trade puts.

    • If the market seems flat—the RSI and MACD indicators are not hitting extremes throughout the day—I just stay out.

    • I make only one trade per day. If I am trading more than that most likely I am either cocky and think I can make more money or I am trying to fix a loss trade—both are bad ideas.

    • I never risk more than 30% of my trading account’s capital in any one trade. Yes, this percentage is high, but I am only risking money I’m willing to lose. That said, the SPY is stable so in reality the risk is more like 15%.

    • If the conditions are right I scale into a trade up to 4 times the dollar-cost average. I only scale down, never up—meaning I buy more as the price drops, and when I close the trade I sell everything (I do not scale out).

    • I time my entry by waiting for the RSI to cross 70 or 30 and then wait for the MACD lines to cross and proceed in the other direction. I also make sure the MACD histogram bars clearly resemble rolling hills, an indicator that the SPY is not flat. At this point I enter, and if the SPY continues to drop I buy more on the way down.

    • After entering a trade I always set a closing trade price, typically 20% higher than the option purchase price. Doing so protects me in the case of an upward spike in the market and frees me from being glued to the computer screen.

    • I do not set stop losses. The SPY is not crazy volatile and almost always I have some money left if a trade goes against me. Plus, I never risk more than I can handle losing. Stop losses are bad because sometimes the market really has to fall before it can pick back up. I have been down 50% only to be up 20% 10 minutes later.

    • I rely on my gut to time my exit (one of the reasons I have not automated this trading style). I always set out aiming for a 20% return, but if the market is not accelerating I will lower my goal until it corresponds to the reality of what the market is yielding. If a trade goes against me I simply wait for an uptick and use that opportunity to close the losing trade. Almost every day some buyer comes in and pushes the SPY up or down faster than normal in one big trade, but if not I sell at 3:59 and go all cash.
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    Kenna and laloparana like this.
  1. dealmaker


  2. I do not day-trade, nor do I day-trade options. Curious to trading SPY options VS SPX options. One would think SPX options would be preferred to reduce commissions costs. The liquidity of SPY options is much greater than SPX, but is it better than 10X for bid/ask spread? Also curious why trading options instead of ES futures for slippage reduction. Not my cup of tea, but choice of SPY options do not seem optimal for the trading criteria provided (SPX options or ES futures seems like a better fit) I am merely trying to understand, not critique!
  3. Handle123


  4. I don't daytrade but a swing trading method to trade the spy for a couple of days would be welcome
  5. What's your long-term performance o_O:) -- I kind of have a similar methodology...that's why I'm curious to know how we rack up against each other.
  6. I have been doing it for a year. I blew few accounts thanks to algos sideways action. Overall I am in plus since January 1rst. I try to trade only SPY, although sometimes I get tempted to buy VRX, BABA, FB, LULU and NFLX with a small amount of my account. My result on these stocks are mix. I usually give it back what I make next day.

    It seems to me SPY works the best, esp with an account under 25k that way you choose best 3 trades in a week rather than jumping into every setup
  7. chop will kill you, you might look into selling strategies to trade SPY swing
  8. hmm.. since I trade spy like him. and have been doing it for many years... I have been observing its behavior on Friday.. weekly expiry... :).. it can be a beast.. apart from mini crashes. I have seen SPY do crazy things on Friday..... in sep 2015... it did. 6 bucks +.. went up from 11 ET. ish. to 4pm ET... 189 to 195... just 4 weeks baack.. we saw it go down... 5-6 bucks. on a friday.... so I know what he is trying to do.... if see a trend.. u jump in and out.. . and stick to your rules...

    I am on the other side of his strategy... I sell naked puts and calls on spy.. but far OTM and atleast 5 to 10 days out expiry.... many times.. I am tempted to do one day plays.. as I call it.. just like him... if I see spy has made a move from thu to Friday in one direction and early AM it continues... I make a bet that.. max pain.. Opex.. what every u caLl it... will kick in and it will stall or reverse so I go OTM.. and sell a put OR call. but since the epxiry is just hours away... my OTM is like 2 TO 3 dollars out. so many times I win..but sometimes I have been massacred if I don't monitor...

    so - to summarize. no one on this planet can really tell.. what the SPY beast will do... just when u think I have figured it out.. it will do something new..

    Patelchet likes this.
  9. Actually First time I traded wednesday expiry last week. I was little nervous. Same thing like friday expiry. Pretty much I always give myself 5 to 6 days the most for expiry. Only mondays I trade same friday expiry. Again I close my position at the end of the day. No overnight! Absolutely NOT. I have been burned so many times so keeping overnight is NO NO.

    I try not to trade on Tuesdays. Never had a good luck, usually low volume with no news. Friday can be a hit and miss. Especially options expiry weeks.

    The best part of trading SPY is low IV. You get the most for your buck. SPY moves slow, not like FANG which requires patience. Even numbers can be used as a support and resistance. I have text alert for -1000 tick or + 1000 tick readings. I fade these extreme readings.

    one last thing darwin; if selling puts or calls working for you then stick with it. I have a friend he only buys vertical to keep overnight. No intraday trading. He has a formula he acn guess gaps which sounds to me like gambling. It's all about what it works for you. One day trades can be lucrative, but like Mark Douglas says ANYTHING CAN HAPPEN. Look at the last friday market action after the job report. It's all about sticking your rules.

    #10     Oct 10, 2016