Short Term Trading Strategies: What Are the Most Profitable?

Let’s be very clear about something, whether you’re trading options, stocks or even futures, it isn’t easy. Short term trading strategies an change your trading game. My belief is that anyone who is interested in trading should start small and get a feel for how trading works. Many traders are drawn to options because they offer leverage and the ability to design neutral positions. In other words, you don’t need to predict direction 100% of the time. Actually, you only need to be a little bit right on direction.  

Your goal as a new options trader should be to assume as little risk as possible while you get a feel for how trades work. So for today, I’m going to show you two options strategies any new or aspiring options trader should understand. 

Short Term Trading Strategies

  • There are many ways to trade the market and trading options short term are one of them.  But if you’re going to trade options short term, you need to make sure you’re right on with direction because that’s where options have really bite you. If you’re trying out options for the first time, I highly suggest you paper trade them first. We have a fantastic video on how to paper trade options you should watch before you go any further. 

Two Options Strategies to Use With a Small Account

Many times we start out with a small account. We look for an easy trading system indicator to give us a leg up on the competition. Because trading is a competition.

Whether you’re using short term trading strategies or investing, we’re competing for profits. There are two strategies you can use with a small account with options. Those are known as Butterfly spreads and iron condors. Keep in mind that there are other ways to trade options as well. Take our trading courses to learn more.

Trading A Butterfly Options Spread

Short Term Trading Strategies

A butterfly option spread is a risk-neutral options strategy with limited downside risk. It combines bull and bear call spreads to earn a profit when the price of the underlying stock doesn’t move much.

Even though your profit potential is somewhat limited, so is your risk, which makes this a popular strategy for those with a neutral outlook. Furthermore, it is one of the few options strategies that work well in a small account. 

To construct butterfly options spreads, you purchase a contract with a 45-55 day expiration slightly below the money in an equity market ETF like SPY. 

If the price of the underlying trades higher, a second Butterfly can be purchased to stretch out the expiration break even lines. Furthermore, if prices continue to trade higher, the first butterfly can be rolled up.

The goal is to keep the market trapped under the expiration break even lines. And at the same time, not incurring too large of a loss. 

As you know, the whole name of the game is to limit your loss and protect your account. Because the risk/reward ratio is relatively favorable, this strategy more forgiving to the new trader.

Another benefit of trading this options strategy is that the position will typically make money on the downside due to skew.

I won’t go into too much detail here, but the skew is used to describe the implied volatility of options at different strikes.

This may not seem like like it can be lumped in with short term trading strategies, but it can be.

Trading Iron Condors

Did you know that the iron condor is a short premium strategy? What this means is you are a net seller of option premiums. Hence, when you initiate an iron condor, you are actually receiving cash upfront.

You don’t get to keep that cash unless several factors work in your favor. In fact, the iron condor strategy is one of the most versatile options trading strategies out there with over a 70% probability of success.

If you trade it correctly…

That’s why many traders learn to trade iron condors on ETF’s like the SPY and SPX. With high liquidity and small strike spacing, they are excellent choices for trading in a small account.

If you’re familiar with vertical spreads like credit spreads, you’ll quickly notice that an iron condor is just the combination of a short call credit spread and a short put credit spread.

It’s a defined risk options trading strategy that benefits from non-movement in the price of the underlying. Yes, that’s right, non-movement.

At this point, you’re probably wondering how does one possibly make money without getting the stock price direction to move in your favor?  

The answer is because this strategy takes advantage of factors like time decay and volatility to make money.

A common approach to initiate high probability iron condors is to sell deep out of the money options. A high percentage of the time the trades make money, but sometimes require adjustments to manage risk.

If you want to know more about trading this strategy, we have an options strategies course.

How Do You Trade Short Term?

Short term trading strategies include day trading.

  1. Make sure to have the best day trading system or swing trading one.
  2. Check Futures or the $SPY to see how the markets are moving.
  3. Look at the daily chart of the stock.
  4. What is Volume and MACD doing? How about other moving averages?
  5. What direction are the patterns showing? 
  6. Find support and resistance.
  7. Decide if you should trade a short put or a call spread?

Short Term Trading Strategies for Those of You With Slightly Larger Accounts

If you have a larger account and you want short term strategies to account for that, we have those you also. 

You can day trade weekly options. Day trading options is a great way to take advantage of the quick moves in highly liquid stocks. 

But you must manage your risk. If you get the wrong direction, you’ll potentially be out the cost of the trade. Which is why many people like spreads.

Trading Weekly Options

short term trading strategies

For those of you not able or not wanting to trade every day, trading weekly options might be a solution.  However, they have additional risks that make them more dangerous to a small account.

Some trade SPX and SPY weekly option contracts on the day before and day of expiration, which is a highly risky and speculative approach. Furthermore, positive theta weekly options positions frequently carry high directional risk (think gamma). 

Because of this, we encourage you to take the time to learn all the in’s and out’s of weekly options trading; we can help you if you’re interested. It is a great short term trading strategy. 

Tips for Trading Options in a Small Account

So can you grow a small account? Yes! Can you do it with short term trading strategies? Yes! Is it easy? No.

The odds are against you but if you fiercely protect your account and manage risk, you’re ahead of 99% of new traders. 

That’s why it’s important to set your expectations straight, right from the start. Don’t expect to be a millionaire by the end of the year. 

Manage Your Risk

This isn’t a new concept, in fact at Bullish Bears, we can’t stress enough the importance of managing risk. Options trades with low priced stocks and ETF’s can be sized accordingly, so your dollars risked each trade will be relatively small.

However, your percentage of account equity, or “dollars” at risk typically will be more significant. You must realize this, so you don’t incur substantial losses. 

For example, let’s say you’re employing an ETF strategy that risks $100 per trade. When you do the math, this equals just 2% of a $5,000 account.

But $100 per trade with only a $1,000 account equals 10% at risk – a surefire way to blow up your account.  

So even though options positions are constructed with a low dollar amount, your dollars at risk must be considered as well. That being said, keeping your risk below 2% of the account equity per trade is a good starting point. 

You can take many more 1%-2% losses in a row without destroying your account equity. Managing your risk is imperative whether you’re swing trading or using short term trading strategies. You might want to check out our blog post on risk management, trust me it’s worth it. 

Where to Go From Here?

At Bullish Bears, our approach requires that you take the time to build your foundation of knowledge. We share our short term trading strategies and, and how you respond is up to you.

Some seek to improve or even develop their own strategy using ours as a baseline. Whatever your approach, trading has the potential to change your life, and we will show you how. And here’s a free candlestick cheat sheet to get you started on your way.

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