Scalp Trading: Options

Status: Scaffolded - Content pending Last Updated: 2025-12-11

How Options Scalping Works

When you request a SCALP trade on OPTIONS, the algorithm:

1. Analyzes the underlying stock using scalp parameters
2. Determines direction (CALL for bullish, PUT for bearish)
3. Targets a 0 DTE (same-day expiration) contract when available (index ETFs often daily; most single stocks typically only Fridays). If 0DTE isn't available, it uses the nearest expiration and flags that a true 0DTE scalp isn't available for that ticker/day.

Data Collection

Data Type	What We Get
Underlying Price	Real-time snapshot of the stock (includes VWAP)
Stock Bars	2 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	RSI(9), EMA(9), MACD 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

Style	Target DTE
SCALP	0 DTE when available (otherwise nearest expiration)
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 do not. If it's not Friday for a single-stock ticker, a "scalp" may end up using the nearest expiration (often the next standard expiry) and should be treated as less ideal than true 0DTE.

Step 3: Delta Filtering (Three Phases)

Phase	Delta Range	Notes
Phase 1	0.30 - 0.55	Ideal balance of leverage vs risk
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

Contracts are ranked by:

1. Price — Affordable within risk budget
2. Volume — Higher is better for liquidity
3. Theta — Lower absolute value is better (less time decay)
4. Delta — Closer to 0.40-0.50 is better
5. Open Interest — Minimum 100 contracts

Step 5: Expired Contract Removal

The algorithm filters out:

• Contracts with past expiration dates
• Contracts expiring TODAY after 4:00 PM ET

Why 0 DTE for Scalps (when available)?

Pro	Con
Maximum leverage (gamma)	Rapid time decay (theta)
Cheapest premium	Dies worthless if wrong
Clear time horizon	Highly sensitive to moves

0 DTE is only for aggressive scalps. It can expire worthless if the move doesn't happen today — and it may not be available for every ticker on every day.

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: $1.50
- Contract cost: $1.50 × 100 = $150
- Contracts: $500 ÷ $150 = 3 contracts

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
Time Stop (15-30 min)	Exit 100% at market
30 min before close	Exit remaining (avoid pin risk)

What the Trade Plan Looks Like

Direction: LONG
Underlying: AAPL
Contract: AAPL251211C00190000
Type: CALL
Strike: $190
Expiration: 2025-12-11 (0 DTE)
Entry: $1.50 - $1.75 per contract
Stop: Close if underlying loses $187.50
Target 1: $2.50 - $3.00 (50% of contracts)
Target 2: $4.00+ (remaining 50%)
Time Stop: 30 minutes or 30 min before close
Contracts: 3
Max Risk: $500 (1% of account)

Selection Rationale:
- Delta: 0.42 (good directional exposure)
- Volume: 5,234 (excellent liquidity)
- Open Interest: 12,500 (very liquid)
- Theta: -0.15 (acceptable for 0 DTE)

Scalp Options Risks

Risk	Mitigation
Total Loss	0 DTE can go to zero — risk only what you can lose
Wide Spreads	Avoid illiquid strikes
Gamma Burn	Quick moves against you accelerate losses
Time Decay	Exit quickly, don't hold
Pin Risk	Exit 30 min before close