If you are day trading options, or lets say your time frame is to hold for max only a few days. (so few mins to few days) Which is the best strike prices/time frame to use? This question is for stocks btw. Should we trade slightly out of the money? e.g AAPL is trading at $150, we use the $155 options or $145 Regarding time frame, should we go with the next options to expire, or go a few weeks out? Options that expire within 7 days will be losing a lot due to theta right? But they will have the most volume. Or should we go a few weeks out? But won't the spreads be wider and volume lower? pros and cons and thoughts please. (again this is for day trades and trades where we only hold for a few days max) Thank you for any time and help
Assuming that you have a directional bias, you should not trade options unless you have a view of where price will be over a certain time period. With stocks, you only have to get one variable right (direction). With options, you need to get direction, time, and magnitude of the move right to make money. If you're not looking for more leverage or defined risk, then stick with simply trading the underlying. If you are looking for leverage, then you'll want to trade ITM for higher delta relative to ATM or OTM. If you want defined risk, then trade spreads.
$5 gap on AAPL is not slightly out of the money that's extremely out of the money even for 14 DTE options. It's a slow mover so either ATM or the 152.50c/147.50p. Also, if your just planning to daytrade it or just hold it a few days. It makes more sense to just choose either the closest expiry or 2 week options. (Situational.)
It really depends on many different factors including your outlook on the underlying, the volatility of the underlying in a particular period of time. So it's a bit of a chicken-and-egg kind of question. Generally and theoretically, all else equal, the longer the DTE of an option, the larger the potential price movement of the underlying.
Of course yes. Apple is trading at $150, it's about to break out on the 3 min chart. Which Option are we going long on....the next option to expire, slightly out of the money? or ITM and an Option that has a few weeks left?
There might be something of use to you in this thread linked below... Here's a form that's set up to compare the difference between trading ~40delta and ~75delta. The prices listed after the fact on the 4 IB options charts (buy ~45, buy ~75; exit ~45, exit ~75) were wayyy to sparse to get anything approaching reliability due to Lowww option volume for this product. My mistake, lol. AAPL options on the other hand should have plenty of liquidity to give a good read, especially if you sample enough round trips. If you follow the links back you may find some good info. Robert Morse chimes in early on with his experience in the field. A guy in a trade room used to trade futures while waiting for trades to develop. He'd sometimes run down stock options trades he was working. For the quick and dirty in-out stock day trade plays he would simply buy calls or buy puts at the strike nearest to 40delta. Robert Morse mentions ~75 delta. If you explore data-wise, or alternatively just dive in to a couple small trades using a couple of different parameters and keep good records, it seems you should end up with a sweet spot zone that works for your situation. https://www.elitetrader.com/et/threads/day-trading-options.365808/page-3#post-5564710