Day trading options allows leveraging volatility in underlying assets like stocks and ETFs to potentially generate outsized returns over short time frames.
By analyzing implied volatility, delta, gamma and theta, options traders can capitalize on anticipated short-term price movements within an options contract’s time decay period.
However, it also requires appropriate risk management given increased leverage compared to trading the underlying cash markets.
Reading Options Chains
Options traders study options chains to identify potential trades. Factors considered include open interest, volume, delta, implied volatility and strike prices.
High open interest/volume indicates options with sufficient liquidity. Strikes just out of or inside the money tend to present better risk/reward.
Entry Signals
Entries often target options expected to move significantly into or out of the money to benefit from delta shifts.
For short-term directional plays, options with high gamma capture larger proportionate gains on moves.
Views can also be constructed by comparing implied to realized or expected volatility.
Managing Positions
Positions are kept very short-term, from minutes to a few hours usually. Puts/calls are exited quickly when profit targets are reached, whether from directional moves or IV expansion/contraction. Partial covers help lower risk as trades progress favorably.
Strict Risk Controls
Due to increased leverage, risk controls are exceptionally important. Limited exposure size between 1-2% of account keeps losses small.
Options chosen carry sufficient liquidity and wide spreads are avoided. Trades are exited intraday by the close to eliminate overnight holding risk.
Using These Strategies Responsibly
Day trading options demands extensive preparation, experience with options greeks and disciplined risk management. Capital requirements are higher too due to intraday margin calls.
Traders must monitor positions closely throughout the session for dynamic delta neutral portfolio management. As always, only trade with risk capital and never exceed your defined risk tolerance.
In summary, day trading liquid equity options presents amplified profit potential versus trading stocks outright if performed judiciously with the right strategies, planning and controls in place.
It allows experienced traders to potentially generate consistent returns by capitalizing on short-term volatility and pricing inefficiencies in the options market.