Ken, you would just buy OTM puts (out of the money). It's very simple, I do it all the time. So if SPY is at $400 and you think it's going to $397 today, you would target something like $398 strike. On MWF they have 0DTE (zero days to expiration) so they expire that day. These are the best days to play this due to the massive leverage. For example on a 0DTE day, that scenario above would cost you around 10-15c depending on time of day and volatility in the market. If you are right and SPY drops $3 then your puts would be worth something like $1.30-1.50...so a 15x trade. If you are wrong you can usually punch out for a few cents if there's some time left in the day.
I trade options...as my username suggests I do. SPX options, daily. I bet/trade at what I perceive is the ideal buying spot and selling spots for the day. I generally aim to capture that one, obvious, major move you see at each day's chart. ATM, at the money strikes, so you don't have to pay any intrinsic value on the options. I won't explain my process, evaluation, expectations, assumptions, analysis, mindset, striking point, killing point, though. That is a hidden, private, secret. That's the secret sauce. Knowing where to bet each and every day on the S&P chart...would be the Holy Grail. With that skill...someone can truly grow a snowball into an avalanche.
Several ways to trade these. ***Equity options only trade during RTHs. No pre/post market trading. Futures options trade all hours futures are open. Example : (4 days to expiration) SPY was near 449 at the open yesterday. Buy 1 ATM put (449P) at market open for 2.74 ($274) Close position end of day for 4.57 ($457) Profit 1.83 ($183) ***Sept. 13 449P would have done even better. (Pay $194 ... profit $172 ... almost a daily double )
I can tell Alpha (Alfa Romeo) from Vega (Chevy Vega) but I don't know diddly about the Greeks but what I do know is you can buy and sell a Call and buy and sell a Put. Long - buy call or sell a put, short - sell a call or buy a put. "We got both kinds of music!"
If you buy otm puts you’re payoffs will in general be asymmetric IF a big unexpected drop happens. They are also the least margin consuming. A simple way is also to sell a ditm call. Since youre timeframe is one day I would take the most liquid ones with a short expiry ( e.g. 1 week). If you want to cap risk ( and returns ) you can buy a call with a higher strike and turn it into a spread. This will also reduce margin. Since in general you want to buy a longer expiry and sell shorter expiry you can turn it into a diagonal. So you sell a ditm call with 1 week expiry and buy a call with higher strike and longer – more than 6 months out – expiry. Now on a drop the short call will lose money faster than your long call (more vega exposure, less time decay). On a rise your short call will gain more than you long call, but if you keep on selling ditm weeklies against the long call the collected cumulated premiums will offset a big part of the cost of your long call. Offcourse you have to keep on doing this will cost you some effort, time and allocated capital which cannot be used for other opportunities. If you want to refine further swap the long call after 3 months for another 6 months expiry. Offcourse you have to take in account spread and transaction costs with all this.
When you replace "or" with "and" in the above statement, those positions are called Combo and Risk Reversal respectively. They have 100 deltas and behave just like the underlying stock. Combo: buy Call and Sell Put Risk Riversal: buy Put and Sell Call Disclaimer: I am still learning options and could be wrong. I am still trying to learn to trade combos and risk reversals for their deltas but not comfortable with the naked put or call part. I guess you would just place a stop loss on the whole position, just like in futures. Since you are a veteran in futures trading, you might like this better as you won't have to worry about greeks other than deltas with these.
I'm sincerely grateful to all of you for some outstanding posts and tips..... great forum. I've learned a lot so far from what you've all written.
Ken,go with NWD.. Not sure why you are looking to complicate things. Is it for holding overnight and sleeping at night?? You don't seem like the type of guy to lever up,nor a punter.. There's been some good advice and some very bad advice.. I see zero edge for what you do
I don't think any reasonable person would expect you to give away your secrets, but talking about the generally-useful concepts and the basic mechanics - things that are obvious and routine to you - would be very useful to newbies. I know that without the help that I received early on from a number of the good folks in this forum, my trading skill would not be nearly where it is today - but I'm also 100% certain that I'm not taking bread out of their children's mouths despite them having gone into a fair amount of detail about what they do. IMO, 99% of the time, no one would be able to trade precisely as you do even if you tried your best to explain it for a month straight - because each individual trader's knowledge and experience are essentially unique. We can share useful info with each other - you never know what will make for an "A-HA!" moment for someone else - without revealing our deepest juju... assuming there is any. A lot of people just make money from the basics - good risk management, their understanding of the market, segment, or a given stock, etc. - and the market is large enough, with enough liquidity, asset types, events, and possibilities to accommodate all of us without getting in each others way. If you happen to be one of the (very rare) traders who have some kind of magic formula that brings you success, it certainly "rides" on top of a foundation of basic knowledge - and sharing that would do you zero harm but be very useful to others. There are people here who get, and deserve, quite a bit of respect. I think you'll find that they are the ones who share what they know with others in the way I described.