In this tutorial, we will share an example of how to safely day trade Spy Options for Profit on expiration.
We do this using to the Dark Pool Prints for 100% profit in less than 30 minutes.
Impressive you may think.
Want to find and learn how you can do it yourself ? Keep reading below.
DAY TRADING SPY OPTIONS: WHAT IS AN ETF ?
SPY, QQQ and DIA Top 10 Holdings
For our beginners, SPY is the market biggest Exchange Traded Fund (ETF).
It is a mix of 500 of the most important US companies.
It aims to capture the heartbeat of the overall market.
Other ETFs are more focused on specific sectors of industries.
Below are the three big ETFS that leads the US markets: SPY, QQQ and DIA.
This means that these are the ones you will hear the media report on when talking about the status of the market.
When the overall market is bullish, SPY trades in the positive territory and vice versa.
We can notice a company like Apple account for 4.2% of SPY, 11.6% of QQQ and 6.2% of DIA.
Why is this important ?
This means that whenever Apple stock (Ticker:AAPL) is leaning heavily in a certain direction, so will these three ETFs.
More particularly the one where Apple’s representation is the highest. That will be QQQ.
The reverse of the above statement is even more true.
Nowadays, ETFs have become the primary vehicle on how money is injected and removed from the market.
I know this through the heavy volumes of trade I see on FlowAlgo everyday.
So, whenever SPY, QQQ and to a smaller extend DIA are being bought by big money, the lion share of that money will go to the stocks with the biggest representation in these ETFs.
What does this mean ?
How To Trade Accordingly
Let’s use SPY as an example.
Every time SPY is bought for “X” millions, per the chart above, 4.3% of that goes into buying Microsoft stock (Ticker: MSFT).
Following that logic, almost 4.2% of that will be devoted to buying Apple stock while 2.9% will go into buying Amazon stock.
The impact of this reality is that only a handful of stocks really move the market.
Those stocks are the ones you see in the tables in the last column percentage assets.
As a consequence, a strong correlation always exists between these ETFs and their stocks with highest percentage assets.
Let me leave you with this recent headline from Yahoo Finance.
The truth is that I did not have that info from Yahoo Finance when I started this post 😂.
Funny how this information just perfectly matches the content of this section.
Correlation between AAPL and SPY
A correlation study between Apple and SPY or QQQ is bound to be very high.
Similarly, the correlation coefficient between Boeing (Ticker:BA) and DIA should be above 0.7.
If you are not familiar with Correlations studies, no worry.
When in a hurry, I usually like to use this online tool for correlation analysis.
But, it is limited because it only works for stocks and not ETFs.
To remedy that, I also perform the analysis manually.
I will be publishing a Video Tutorial on how to generate Correlation studies between stocks and ETFs in the near future.
For now, let us dive into what brought you here: Day Trading SPY Options. Shall we ?
Day Trading SPY Options Using The Stock Whisperer App
Since 2018, SPY now has Options Expiration on Mondays, Wednesdays and Fridays.
That makes this ETF Options very liquid to trade and opportunities are always around the corner.
That is a curse and a blessing for traders because instant gratification and the Risk to over trade are two big snares prowling around.
IF you want to learn How to Trade SPY Options for Profit, it is imperative to control your emotion and stay disciplined throughout the course of a trading day.
We were able not to fall prey to any of the two and waited for the right moment to partake into the trade below.
After the long holiday weekend, trading resumed on Monday Dec 2 2019 with a small gap up.
Spy opened the pre-market session at $315 from $314.60 close on November 29, 2019.
By the opening Bell, SPY was trading at $314.59. So a really flat open from previous close was our setup.
How to Trade SPY Options For 100% Profit: Entrance Criteria
We have not traded SPY for options in a long time.
Reason For the Trade
So we needed strong confirmation that this trade was worthwhile.
We discussed in The Stock Whisperer App review about the importance of Dark Pool.
Dark Pool helps traders determine the overall direction of the market (and other securities) so that we can enter the appropriate trades.
Well, on Monday, December 2, 2019, after 15 minutes, SPY felt below a major support level of 314.4.
As shown on the below Daily Dark Pool Whisper sent by Stephanie Kammerman before the Open of the market, it was time to take a bearish trade.
Sometimes, the publisher of The Stock Whisperer uses the SPY Stocktwits when her App is going through upgrades.
She is able to leverage the popularity of SPY in Stocktwists to further increase the reach of her services.
We entered the bearish trade with a simple Put.
Confirmation of The Trade
The second confirmation for taking this trade came from the DAX at -0.7%
We shared a while back how we like to monitor correlation between the US markets and international markets.
We do this using the Investing.com mobile App.
Here you can find the daily correlations between SPY and DAX the German index, for each year, from 2016 to 2019 included.
During US pre-market on Monday, the DAX broke below recent major support.
It was trading well in the red at around -0.7% after a sharp reversal from earlier gains.
Trading SPY Options on Expiration Day: Exit Criteria
The Risk of Trading SPY on Expiration day is that it does not leave any room for greed.
You know, that little instinct inside our minds that take over sometimes (hopefully just sometimes) .
Yet, Trading SPY on Expiration remains one of the Best Way To Trade SPY Options.
Let us use this short video (Duration: 4min30s) to analyze our exits as well as other details about this successful trade.
We shared this SPY case study where we were able to trade SPY options for over 100% profits.
We used the Dark Pool prints level to ensure of the direction of the trade and quickly profited from it.
You will discover than 100% gain on Options can be fairly standard as you discover How To Make Money Trading SPY Options.
This day trade of SPY options could have yielded a little be more than what we cashed in if the trader was willing to accept volatility.
We will strive to bring you these use cases proving that Trading SPY Options for a Living is not just a myth.
We hope you found value in this SPY Day Trade review as we continue to showcase examples on How to Learn To Trade Options.
Let us know your thoughts on how you would have managed the ups and downs of SPY during this trade.