1. Introduction - Day Traders
  2. Introduction - Day Trading and Options
  3. Types of Options
  4. Near Month In-The-Money Options and The Protective Put
  5. Stock Options and Weekly Options
  6. Mini Options
  7. Index Options and Mini Index Options
  8. Binary Options
  9. Options on Futures
  10. ES Weekly Options and E-Mini Options
  11. ETF Options and IRA Options
  12. Conclusion

Options are not a traditional component of day-trading strategy. But this is changing. These days, many day-trading companies are offering their members the ability to trade options. And traders are also discovering that they can successfully apply classic day-trading techniques to buying and selling options. It is also important to note that day trading options is one of the lowest-cost strategies available to investors, as options give the trader the ability to get into and out of positions far more quickly and often with less risk than securities like stocks, bonds, and mutual funds. One of the major benefits associated with options is that they cost far less than buying the underlying asset (such as shares of stock) outright. So rather than buy or sell shares of stock, the trader can simply buy an option and control the same number of shares for far less money.

What Is an Option? 

An option is a financial derivative. It is a legal contract that gives the purchaser the right to buy or sell a security at a specific price during a certain period of time or on a specific date (the exercise date). The seller also holds an obligation to fulfill the transaction, which is to sell or buy, if the buyer chooses to “exercise” the option before its expiration. The U.S. Securities and Exchange Commission regulates the buying and selling of stock options. 

What Is in an Options Contract?

An option contract should specify the following:

  • type of option (call option or put option)
  • underlying security
  • unit of trade (number of shares)
  • strike price (price at which option can be exercised)
  • expiration date

Many day traders who trade futures also trade options because options have a lot in common with futures. For one, they are frequently based upon the same underlying financial instruments. They are also quite similar in their contract structures.

However, the manner in which options are traded is very different from how futures are traded. There is a lot more range in the availability of options, and the rules of trading are also different. Options can be purchased not only on futures markets, but also on stock indexes, as well as on individual stocks. Options can be traded singularly, or they can be bought in conjunction with futures contracts or stock trades, to form a type of insurance on the trade.

Options offer leverage and the ability to hedge and limit losses. However, without proper understanding and correct trading strategies, options can be classed as risky investments, and this reputation often intimidates new traders.

Challenges of Day Trading with Options

Day traders will encounter a couple of problems when using options, none of which are insurmountable.

  1. Price movement can become dampened due to the time value element of the option premium, such as with near-the-money options. Although the inherent value may go up along with the underlying stock price, this gain is undermined somewhat by the loss of time value. Keep in mind, however, that the time value for day trading is quite limited.
  2. The bid-ask spreads are usually wider for options than they are for stocks. This is mainly due to the reduced liquidity of the options market. This can vary as much as half a point, which will cut into the limited profit of the typical day trade.

Types of Options
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