Stock Option Trading Strategy and Day Trading Stock Options

by Billy Williams

 Option trading offers a variety of strategies for profit but because of their volatility stock option trading also offers great profit potential with day trading stock options in the context of an effective trading system. While there are many option strategies that can be combined with swing trading stocks or even forex swing trading the opportunities for day trading stock options is often overlooked. Upon closer observation, day traders can effectively use stock options for short-term trading while taking advantage of the leverage, risk control, and limited exposure that trading stock options offer. However, keep in mind that this is an advanced method of options trading before you ever consider day trading stock options without several years of trading experience under your belt.



So, the first key in how to trade stock options with day trading is that it is better to look for only highly liquid stocks with preference given to blue chip stocks that have enormous volume during any given trading day. The reason for this is that you want to be able to get in and out of a stock option very quickly and the way to be sure that you can do that is to trading in a stock whose company has a huge following of traders to make sure that the options market is always liquid enough for quick buying and selling.



The next key is to trade in stock options that are in the last 7 to 10 days before expiration. Normally, if you were swing trading stocks and combing it with option trading, I would recommend that if you expect an average of a 7 day trade till you normally take profits then to select an option that has 30 days of premium plus the 7 days worth of time on the option till expiration. But when day trading stock options, you want the volatility to be high so that the option quickly appreciates to reflect the ebb and flow of the stock’s price. To be certain, always try to select an option that has a delta reading of 1 or better. By doing this, you can be more confident that the option will move in sync with the stock’s price action.



Third, for any decent option trading strategy that you use for day trading or any kind of stock option trading then it has to have a method of selecting the right stocks to match the option trading methodology as a component. My recommendation for day trading stock options is to look for companies that are impacted by some big news event when trading stock options. Stocks in companies that have announced layoffs or launched new products are more likely to have big moves in either direction which can be capitalized by a skilled day trader and exploited by using an option trading strategy. Fortunately, there is a universe of stocks to choose from and almost every day there is some big news event that impacts any given stock on any given day so stay alert for trading opportunities.



While this option trading strategy is not without risk the profit potential is huge for a skilled option trader or day trader. Remember, have a solid game plan for how to make money trading stock options in high volume, liquid blue chip stocks that are impacted by a big news story during the last 7 to 10 trading days and stick to trading stock options with high delta readings of 1.0 or better. With a little skill and experience, you can learn to spot quick trades for huge potential gains while enjoying the benefits of risk control that only stock options can offer.