I have a method that is very good at predicting three to five day turns. I can, of course, hold these positions longer if they are moving in my favor. I am having a hard time picking which option to buy, or sell. It looks like the best way to do this is to sell the front month option because the time decay accelerates in the last three weeks. What should I be looking for and how can I find the data to find the best option to sell? A typical example is my purchase of a SPY put four days ago. Even though the SPY has moved 100 ticks in my favor.......the option is at the same price I paid for it. This method can be used with a forty cent stop on the SPY. I dont plan to trade anything terribly volatile....just indexes. For that reason I am not very worried about being short the option. The most they could gap against me is a dollar or so. Any advice?
(1) What does your "method" predict? Tops and bottoms? Trendiness? Breakouts? Reversals? (2) If you expect to have a 3-to-5 day time horizon, that's still generally not enough time to capture decent time decay, even during the last two weeks of the life of a short-option position. You still have to hope for the market to sit still. (3) You might be better off trading the underlying instrument in order to reduce the slippage you can expect to pay on options positions AND the underlying instrument will behave as you expect without the options-greeks.