What should a trader do when the market is moving fast on the open? Each day in our SPX Daily Outlook we provide 3 key levels based upon our proprietary algorithms. We are forecasting levels that the SPX and the SPY should reach during the day. At times the market opens so strong, that it can move through one or multiple levels before 9:35 EST. It is rare that it moves past more than 1 level that fast, but it can happen. It did happen this past week on Monday, November 7, 2016. So what is a trader to do on such days?
When the market is moving fast, we enter our trades just as we always do. Because most often if the SPX or SPY has moved through those key levels that fast, it is a good indication of further movement in that direction for the rest of the day. So we trade as we always do. That is what we did this past Monday, and it resulted in a very nice profit.
In our SPX Daily Outlook we also provide the specific option we are trading, and the maximum price we are willing to pay. On Monday we shared this: “We plan to Buy to Open .SPXW161107C2110 (SPX Weekly Option: call, Strike: 2110 Expiration: 11/07/16) at limit price of 12.5, looking to enter after 9:35 a.m. EST.” At 9:35 the SPX was just under our third level of 2115, but the option was still available at 7.85. So we entered the trade, as we normally do. In our trading, if the option hasn’t moved past our limit price, we will still enter our trade. Then we were able to ride up our position for a very nice 129% profit.
So we are encouraged when we see such strength at the open. In our experience this is not cause to avoid the trade, but rather to anticipate a profitable day. As long as we can purchase the option under our limit price, we trade. It was a crazy week in trading, but we were profitable at the end of the week. Looking forward to another great week ahead day trading SPX and SPY weekly options.