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CLINICAL TRADING MASTERY

How I Day Trade Options

Table of Contents

Watchlist

The same watchlist everyday. Trading the same stocks for years has helped me understand how they move and which stocks I trade better than others. For example, AMD post earnings beat, is often down or flat at the open. I know this is not indicative of the possible next day move. As it often moves more than 5% during market hours. 

The watchlist features big technology stocks which are unquestionably some of the greatest companies in the world so fundamentals are never an issue. They follow the overall market (SPY, QQQ, VIX) which is helpful in identifying bearish & bullish trends. 

Additionally, these stocks have option contracts with extreme liquidity, measured by ask/bid spread and volume to open interest ratio. This means I can easily get in and out of positions at market, ask, or bid prices and will retain value. 

The watchlist is as follows:

AAPL, MSFT, AMD, NVDA, TSLA, AMZN, META, GOOG, SPY, QQQ

Identify Strength

My goal in day trading is to identify stocks from my watchlist with the most strength or weakness on a given day to catch the biggest possible move. I do this using custom watchlist columns on Thinkorswim. 

MOVE shows the percent move during markets while accounting for implied volatility. If I’m looking to trade calls, I want to trade the highest MOVE scores. No one knows which stocks will be the strongest on a given day, so this rating gives me my edge. A move score of more than 5  is a strong move in my opinion. 10 is exceptional and is where I’ll see 150-300% trades.

PDH shows which stocks are near the previous day’s high (PDH). To catch the biggest moves, I want to trade a stock that is breaking above the PDH. This gives you potential for runaway price movement, similar to what you’d see on a 52-week high breakout, just on an intraday time horizon.

Combining PDH and MOVE gives me my edge in trying to identify the best price action.

My Levels

I use a custom built Thinkorswim study to automatically plot my trading levels. I do very little chart markups prior to the trading day, although I will mark major levels such as 52-week highs and lows. 

The study plots:

Previous day’s high & low (PDH, PDL), pre-market’s high & low (PMH, PML), and the opening gap.

These are the major levels when it comes to day trading. As the day goes on, new levels will surface, but these are the keys to find trends, support, and resistance.

Selecting Contracts

Since I have a liquid watchlist, this is extremely simple. I don’t have to worry about liquidity, ask/bid spreads, volume, or open interest. 

Expiration date: Weeklies so days until expiration (DTE) is always 0-4.

I pick my strike price based on the Delta. I like to use a delta between 0.30 and 0.50. I think of delta as percent chance the trade is successful. Delta of 0.30 means I have a 30% chance to profit on the trade. 

With a higher DTE, I can afford to use a lower delta. As DTE decreases and especially on 0-DTE, I am extremely careful in using higher deltas (0.40 to 0.60). 

Your premium will not decay as quickly using higher deltas. If you’re trading 0.20 deltas, your position will be crushed on dips and will be extremely difficult to recover from. Therefore, lower deltas means smaller positions and tighter stops.

Executing