Here is a step-by-step example of how we traded on 01/06/2017. We are focusing only on the SPX trade, but we used a similar reasoning and approach for trading the SPY also.
The SPX Daily Outlook was available by 9:31 am EST for members. It told us the following information:
Market Forecast
Close of the day for SPX should be above 2271
1st Target High above 2276
2nd Target high above 2282
3rd Target high above 2287
SPX Trading Strategy
We plan to Buy to Open .SPXW170106C2275 (SPX Weekly Option: call, Strike: 2275 Expiration: 01/06/17) at limit price of 1.75, looking to enter after 9:35 a.m. EST.
We will be looking for about a 120% profit and using about a 70% stop along with using our target price levels in the SPX above….
Based upon that information we are ready to trade, and we waited for 9:35 am. At 9:35 we entered the trade at .71. Now based upon the information we received in the SPX Daily Outlook we enter 4 horizontal lines in our charting software at each of the market forecast key levels. As indicated below
We also calculate our initial % stop and % profit targets based on SPX outlook. Since we entered at .71 our stop would be .21 (-70%) and our profit target would be 1.56 (120%). So we draw lines on our option chart at these levels as well:
Now we are set for the trading day, and we sit back and enjoy the show! We are looking for the SPX to start moving in the proper direction, and will adjust our stop or profit target when either a key level and/or % target is hit. Initially the SPX went against us, and then started to rally at around 10:00 am EST it peaked at our daily target level of 2271, and the option hit 1.35 or 90%. At this point we hadn’t hit our % target, and the SPX wasn’t even close to our 1st level target of 2276 (a key level for us), so we continued to hold to our position not changing our initial stop. The option pulled back down to .35 or -51%, but we held. We held because it had not hit our stop, and it is not unusual to bounce around.
Then finally the SPX started to rally, breaking through our 1st target level of 2276 and then coming very close to our 2nd level of 2282. At the second attempt to break through 2282, it hit 2281.90 and our option was up 958% at 12:45 pm EST. At that point, we were not willing to give it too much room, as that is a fantastic day. So when it started to pull back we exited at 7.05 for a 893% profit.
Now it continued to bounce around, even hitting a bit higher later on in the day. But this is how we traded it, and why we exited when we did.
Trading is a skill that one hopefully gets better at the longer you do it. It requires spending hundreds of hours with charts, learning how to read them and understanding when it is best to exit and when it is best to hold. Subscribers to SPX Option Trader get the benefit of what we’ve learned in our over 20 years day trading experience. We have done much of the work for you, providing you with the key levels to watch. Sharing the specific option contract we are trading, entry price and % targets to use. How would your trading have been different, if you had our outlook to start your day with?
It was a great start to the another exciting year as we day trade SPX and SPY weekly options. Have a profitable week trading!