Day Trading: Options
Status: Scaffolded - Content pending Last Updated: 2025-12-11
How Options Day Trading Works
When you request a DAY trade on OPTIONS, the algorithm:
- Analyzes the underlying stock using day trading parameters
- Determines direction (CALL for bullish, PUT for bearish)
- Selects a 3-7 DTE contract (days to expiration)
Data Collection
| Data Type | What We Get |
|---|---|
| Underlying Price | Real-time snapshot of the stock (includes VWAP) |
| Stock Bars | 5 days of 1-minute candles |
| Options Chain | Full chain with all strikes/expirations |
| Greeks | Delta, Theta, Gamma, Vega, IV |
| VWAP | Volume-weighted average price of underlying |
| Indicators | Full suite on the underlying |
Contract Selection Process
Step 1: Direction from Technical Agent
- LONG signal → Look at CALL options
- SHORT signal → Look at PUT options
Step 2: Expiration Filter (Day Trading)
| Style | Target DTE |
|---|---|
| SCALP | 0 DTE when available |
| DAY | 3-7 DTE |
| SWING | 8-30 DTE |
| INVESTMENT | 30-60 DTE |
0DTE availability note: Index ETFs (SPY/QQQ/IWM) can have daily expirations. Most individual stocks typically only have true 0DTE on Fridays. If 0DTE isn't available, a scalp should use the nearest expiration and be flagged as less ideal than true 0DTE.
Why 3-7 DTE?
- Enough time for the trade to work
- Less theta decay than 0 DTE
- Good gamma for movement capture
- Reasonable premium cost
Step 3: Delta Filtering (Three Phases)
| Phase | Delta Range | Notes |
|---|---|---|
| Phase 1 | 0.30 - 0.55 | Ideal balance |
| Phase 2 | 0.20 - 0.65 | Expanded if Phase 1 empty |
| Phase 3 | Valid bid/ask, missing delta | Last resort |
Step 4: Mike's Top 5 Ranking
- Price — Affordable within risk budget
- Volume — Higher is better for liquidity
- Theta — Lower absolute value preferred
- Delta — Closer to 0.40-0.50 is better
- Open Interest — Minimum 100 contracts
Position Sizing for Options
Risk Amount = Account Size × Risk Percent
Contracts = Risk Amount ÷ Contract Cost ÷ 100
Example:
- Account: $50,000
- Risk: 1% = $500
- Contract price: $3.50
- Contract cost: $3.50 × 100 = $350
- Contracts: $500 ÷ $350 = 1 contract (risk remainder in cash)
Exit Rules
| Condition | Action |
|---|---|
| Underlying hits Target 1 | Exit 50% of contracts |
| Underlying hits Target 2 | Exit remaining 50% |
| Underlying hits Stop Loss | Exit 100% immediately |
| 3:45 PM ET | Exit remaining position |
Critical: Day trade options must be closed same day.
What the Trade Plan Looks Like
Direction: LONG
Underlying: NVDA
Contract: NVDA251214C00145000
Type: CALL
Strike: $145
Expiration: 2025-12-14 (5 DTE)
Entry: $4.20 - $4.50 per contract
Stop: Close if underlying loses $142.00
Target 1: $6.00 - $6.50 (50% of contracts)
Target 2: $8.00+ (remaining 50%)
Time Stop: Market close (4:00 PM ET)
Contracts: 1
Max Risk: $500 (1% of account)
Selection Rationale:
- Delta: 0.48 (good directional exposure)
- Volume: 12,500 (excellent liquidity)
- Open Interest: 45,000 (very liquid)
- Theta: -0.08 (reasonable decay)
- 5 DTE gives time for trade to develop
Day Trading Options vs Scalping Options
| Factor | Scalp (0 DTE when available) | Day (3-7 DTE) |
|---|---|---|
| Time Decay | Severe | Moderate |
| Premium Cost | Cheap | More expensive |
| Gamma | Extreme | High |
| Risk | All-or-nothing | More forgiving |
| Time Horizon | Minutes | Hours |
Day Trade Options Risks
| Risk | Mitigation |
|---|---|
| Theta Decay | Don't hold overnight |
| IV Crush | Avoid earnings dates |
| Gap Risk | Close by end of day |
| Liquidity | Check volume before entry |