Meaning the shorter-term options, although more volatile, are cheaper and have the potential to return more on the investment, based on the risk to reward. While they experience a much higher percentage gain as well as dollar gain. The shorter-term does experience a larger percentage drawdown but a smaller dollar drawdown. While the shorter options have a drawdown as well, they reach 2.70 at the lowest point (23% drawdown $0.80) and reach 5.95 at the peak (70% gain or $ 2.45). The longer options have a drawdown, they reach 11.45 to the lowest point (9% drawdown or $1.05) and reach 14.75 at the peak (18% or $2.25 gain). Let’s take a look at an example of NVDA (Nvidia options):ġ.1 Option 1: 230C that expires Ap(23 days to expiry) cost 12.50 at the point of entry.ġ.2 Option 2: 230C that expires Ma(2 days to expiry) cost 3.50 at the point of entry. The options that expire in a month are going to be less subject to the movement which can be more risk-averse, meaning you may be riskless but you may also get rewarded less. If you are looking for a day trade and you have the opportunity to select one of the following options:
The expiration date for short-term options is pivotal, typically day traders will trade short-term options because they want to take advantage of the faster movement in pricing of the options. How to Identify the Right Expiration Date? Let’s break down these variables in depth.
The shorter the time to expiry the more the options move for you or against you. What Are the Variables in Options Day Trading Strike Selection?Īs an options day trader you will have to understand that you are trading short term options, weeklies, which are affected by the following:Įach of these variables affects the overall price and movement of the options price. As a day trader, you need to select options very carefully and understand the risk and the variables that go into the selection. $10 can turn into $1,000 quickly right? Not the case. However there are too many nuances in options day trading, the main one: how to choose the right strike for options day trading?Ī common misconception with options day traders is that you can easily select the cheapest option available and hope for the best. This is exactly what gets people interested in day trading options, the potential of massive returns and that’s what keeps traders coming back. Options day trading is one of the most exhilarating parts of trading, have you ever seen a return on investment that is hundreds of percent? Imagine you tell your family that you just returned 100% of your portfolio in a week when the average return of the S&P500 is 9% annually.
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