Day trading options for income is a great way to make money in the stock market. The video below gives an overview on day trading options. We do a lot of day trading options in our trade rooms, so feel free to come and join our community to see us day trade them real-time on our live daily streams. Our trade rooms are a great place to learn how to trade options. We also have advanced options tutorials under the "members only" section of our website.
If you want to learn how to day trade options and build a small account, join our room! Dan is now showing weekly (about 3 days a week) live day trading options strategies being implemented. The goal of this exercise is to show you how to build a small account live. He will ONLY be using day trading options strategies with high volume, liquid, tight spread, high open interest options that are volatile.
When you purchase an option, you have the right but not the obligation to buy or sell the security at a specific strike price (stock price) . This means you have the right to buy one hundred shares of the stock you bought the options contract on. Options contracts expire so you can’t hold them forever. Take our options course to learn more about trading options.
There are two types of options that we day trade regularly. They are “naked” calls and puts. You purchase a call if you believe the stock is going to go up. You purchase a put if you believe the stock is going to go down.
The “naked” part means you don’t have any shares of the stock when you buy the call or put, and that you’re just buying a call contract or a put contract. We like to keep an eye on breakout stocks, open interest, or options alerts throughout the day to find stocks to day trade options on.
When day trading options you need to pick a strike price and expiration date that will put you in a profit zone. The expiration date that is closest to the date you’re trading is usually going to be cheaper than choosing one that is a week or two out.
You’ll also need to chose whether you want to be in or out of the money. To help you trade calls and puts, you can use an options chart, such as a chart like interactive brokers.
Being in the money means that a call option’s strike price is below the market price. If you are in the money for a put option that means that the strike price is above the market price. Being out of the money means the call option strike price is above the market price and the put option is below market price.
The first thing you need to do when day trading options is to find the trend for the day. As well as support and resistance. The trend is your friend. And the trend that you see is going to determine the option you chose it also helps you to determine the strike price you want that day. Support and resistance are incredibly important.
Buy at support and sell at resistance if you’re buying a call. Buy at resistance and sell at support if you’re buying a put. If you need more information on drawing trend lines or finding support and resistance take our day trading course below. This course will help you to get better at day trading options.
Another thing that we recommend when day trading options is to pick a volatile stock. You want a stock that is moving, not trading sideways. Day trading options is different versus day trading a stock.
With a stock, you can profit even if it moves 10 or twenty cents. With options the more the stock moves “in the money” or into the money, the more money you will make.
The more expensive the stock, usually the more volatile it is, because its moving dollars a day, rather than pennies. That’s not to say that a lower priced stock isn’t going to turn a profit but you would most likely need to purchase more options contracts for it to do so.
There are a couple higher priced stocks that check out each day because I know they usually end up moving at least $5 or more a day. One of the risks to a higher priced stock is that the strike price is more expensive than a smaller priced stock.
You have to be willing to put up money and be OK with losing that amount. We prefer to trade options on stocks with an ATR (average true range) of 3 or more and using a scanning tool is a great way to find them.
Day trading options follows the same margin rules that stocks do. If you do not have an account of $25,000 you are subject to the Pattern Day Trading (PDT) rule.
You are allowed 3 same day trades in a 5 business day span with a small account. That’s why you want to make sure you pick the right direction the stock is going. Once you’ve hit the limit of trades you can make because of the PDT rule – you’re done for the week.
We’ve found that day trading options for income can be pretty profitable in a short span of time. It’s even something you can do for income. First thing you should do is set a goal of what you want to make that week or even month. Then you should practice in a simulated account before using your real money.
See what you need to do to achieve that goal and what mistakes you make that hurt your success. There isn’t going to be a consistent flow of money. You’ll have days where you win and even win big. And days where you lose. Cutting your losses quickly helps to minimize any damage to your brokerage account. A rule of thumb is to always protect your capital!
We have found that stocks are usually most volatile at the open. But wait to jump in a few minutes before you do. They need to establish their momentum and direction. So many times we’ve jumped into a stock at the beginning because it looked like it was going one way only to reverse and go the opposite way for the rest of the day.
If it’s one of those really volatile stocks then you can usually jump in and out all day if you don’t have that pesky PDT rule to attend to. Or you can, and this is our favorite way to do it, wait for it to find it’s direction get in and ride it out until you think it can’t keep going. Draw your channels and trend lines to find when to take profit. Also, learn technical analysis basics, support and resistance, and how to read stock charts!
Day trading options for income is a great way to trade those big stocks that you can’t afford shares on. You can make an income and have fun doing it. Swing trading strategies are very popular as well.
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