Here are some of the best ways to approach short term options trading:
Scalp Trades – Focus on opening and closing trades within minutes to hours by targeting stocks with active options chains and looking for breakouts or reversal opportunities. Aim for 5-10% gains daily.
Day Trading – Hold trades intraday only. Watch for stocks reacting to news or filling gaps. Use weekly expiration options and tight stops since directions can change quickly.
News Trading – Prepare positions pre-events like earnings releases expecting volatility. Play straddles or strangles to benefit from moves in either direction. Close before report.
Earnings Plays – For high profile earnings, consider spreads like bull call or bear put to limit losses from wrong direction. Set targets to exit post-release on continued moves.
Gap Plays – Scan for stocks gaping up/down Monday/Tuesday. Anticipate gap fill, play directionally with calls or puts. Take profit if gap fills or reverse erupts.
IV volatility based – Sell premium at elevated volatility levels expecting mean reversion. Use bear spreads on overbought plays and bull spreads on oversold. Profit from volatility crush.
Test strategies creatively. Consider unusual options like weeklies, strangles before earnings. With experience scalping multiple setups profitably each week, short term traders can realize their fullest potential.
Why Do Short Term Options Trading.
Here are some key reasons why trading short term options can be advantageous:
Higher Probability Setups – Short timeframes allow focusing on tactical opportunities with tight risk/reward parameters. Things like gaps, breaks, news reactions are easier to predict in the very near term.
Superior Leverage – Short dated options have accelerated gamma and vega characteristics. You get a lot of bang for your buck, magnifying potential profits for well-timed trades.
Constant Action and Improvement – With daily/weekly trades, you’re testing and refining your approach constantly. Losses are smaller so you can adapt strategies quickly as markets change. Skills progress rapidly.
Flexibility – Holding short lets you react nimbly to new information, opportunities elsewhere. Not locked into rigid positions or outlooks for extended durations if proven wrong.
Capital Efficiency – Less money is tied up in each open position since time decay isn’t as profound. This lets you run many trades simultaneously and maintain high portfolio turnover.
Profit Frequency – Small, frequent wins are psychologically satisfying and help offset rare longer term losses. Compounding daily is powerful way to grow accounts over time.
Taxes – Short gains are taxed at preferable income rates rather than long term capital gains. Proper position management can further minimize Uncle Sam’s cut.
For traders comfortable with constant assessment, short term offers compelling advantages over passive, long only strategies. Experience makes the approach highly profitable.
What Options Combination Strategies Are Good to Use With Short Term Options Trading
Here are some effective option combination strategies that can work well for short term options trading:
Straddles – Buying calls and puts at the same strike price lets you profit from volatility increases around catalyst events like earnings. Works great for news or gap plays.
Strangles – Similar to straddles but uses out-of-money strikes on both sides, reducing net cost. Lets you set tighter risk parameters for catalytics.
Calendars – Buy a shorter term call or put and sell one farther out. Can capitalize on volatility mean-reversion without perfect direction. Good for earnings.
Diagonals – Employing a call/put ratio spread across different expiration dates, allowing for flexible outcomes. Reduces net debit.
Condor Spreads – Create a four-legged spread with combinations of calls/puts at different strikes to profit from contained swings and volatility crush. Defined risk profile is ideal for scaling positions.
Collars – Utilizing short calls to help cover the cost of long stock/calls. Customizable protection for stocks moving sideways short term. Mitigates risk.
These multilegged approaches provide diversification benefits and allow effective hedging or reduction of risk when trading short dated catalyst plays. With experience, they can highly boost win percentages over naked positions. Test varying combinations to see what works for your strategy.