SPY Option Trade Anatomy

As there are several distractions recently, I have cut way back on my trading, observing and focusing on very solid setups only. For weeks I have been discussing that the lack of quality setups, plus the numerous low quality weak breakouts, were concerning overall. And this was a good reason to stay more defensive, and cut back on my own positions, selling into strength, yesterday with the bounce in CREE, and moving up stops. But there are always opportunities with calls and puts on the indexes.

Yesterday I discussed short-term index trading, and the resistance area in the SPY to trade off of, which I used as a parameter for my own trading:

And today we are back into the previous bottom of the range before yesterday’s selloff, so another short term resistance area. More congestion, that is trading. The big trade requires a much bigger setup, so maybe into the next solid rally, then that setup could have much bigger potential.”

Yesterday I sent the first chart to a friend, as I was observing the action in the SPY and, ahead of time, I had staked out the next small daytrade area to use for an entry point for SPY calls. And again, I do not mindlessly draw in curves just because they look pretty. They are drawn in for a very specific reason. And as you can see the last curve was already drawn in and my area to get long was staked out – looking for the #3 push down. Also, the first and the third arrows, that alone is a solid trading system for anyone who would like to ask me about it, otherwise I’ll keep it to myself for now and discuss some time down the road:

 

 

So as you can see the SPY bottomed right into the pre-drawn-in curve, I entered a call position:

 

 

The magnified term view:

 

 

I explained my parameters, and always worked out before hand as part of the initial trade setup:

 

 

The trade kicked in and I sold 1/2, should have sold all as per my original thinking and ended up having to sell the rest on a little bounce after the micro top was in, and moved the stop:

 

 

 

 

Also observe the chart. Look at the res area, look at the volume. My belief was that we had seen an upthrust on the SPY, but again, this is options, very small moves can work especially expire week options. So, notice where the SPY stopped the selloff off of the upthrust top. Very nice area to do a totally in and out trade, almost a scalp. Your parameters are excellent, very tight. Use a very tight stop, and back into the high area is the exit. Do not sit there, get out, one way or another:

 

 

Also, notice the SPRING, did not do it, not quite set up, but likely for someone else:

 

mm
About traderscott 993 Articles
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day. Scott returned to markets over fifteen years ago where he continues as an independent trader.

3 Comments

  1. Hey Scott got a couple of questions.
    A)To better help me formulate a question. I will set up a few conditions.
    There will be 2 scenarios and context or time frame will be ignored. Everything will be the same except the variable that I’m trying to extract some information from.

    -Scenario A) An up move takes 20 bars to reach it’s peak and there is 40 bars on the down side that completely nullifies the rally.
    -Scenario B) An up move takes 20 bars to reach it’s peak and there is 10 bars on the down side that completely nullifies the rally.
    I kind of have a feeling that the 1st scenario is more bullish than the second scenario ,however I don’t know how to explain exactly why.By chance do you have the knowledge to explain this?

    B) under what conditions would you rather choose to buy at support rather than waiting to break it?

    https://www.tradingview.com/x/5vDULW1c/
    Today Sold all of my options even the ones that expires 3 months from now.Sold half and the other half of the options later on.I kept the SPY shares.
    I was starting to get greedy. Therefor I used that emotion as an indicator to sell. Sold without even looking at a chart.Did I used my emotions to my favor?

    • B) the easy one. Heck yes. Selling is an art, not a science. Just keep doing this and reviewing the pluses and minuses and it slowly comes together in the way best for you. You’re doing well with these options, nothing I can add.

      • You are talking waves here, and in general the stronger wave moves farther, longer, more volume, less of a retracement. So that should help.

Leave a Reply