Swing Trading: Options
Status: Scaffolded - Content pending Last Updated: 2025-12-11
How Options Swing Trading Works
When you request a SWING trade on OPTIONS, the algorithm:
- Analyzes the underlying stock using swing parameters
- Determines direction (CALL for bullish, PUT for bearish)
- Selects a 8-30 DTE contract
Data Collection
| Data Type | What We Get |
|---|---|
| Underlying Price | Real-time snapshot of the stock |
| Stock Bars | 60 days of 1-hour candles |
| Options Chain | Full chain with all strikes/expirations |
| Greeks | Delta, Theta, Gamma, Vega, IV |
| 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 (Swing Trading)
| Style | Target DTE |
|---|---|
| SCALP | 0 DTE |
| DAY | 3-7 DTE |
| SWING | 8-30 DTE |
| INVESTMENT | 30-60 DTE |
Why 8-30 DTE?
- Enough time for multi-day moves to develop
- Reasonable theta decay (not as severe as short-dated)
- Good gamma while maintaining some theta buffer
- Time to recover if initially wrong
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: $100,000
- Risk: 1% = $1,000
- Contract price: $7.50
- Contract cost: $7.50 × 100 = $750
- Contracts: $1,000 ÷ $750 = 1 contract
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 (3-5 days) | Reassess or exit |
| 50% of DTE remaining | Consider rolling or exiting |
Key Point: Don't let options expire — exit or roll when 50% of time remains.
What the Trade Plan Looks Like
Direction: LONG
Underlying: MSFT
Contract: MSFT251227C00420000
Type: CALL
Strike: $420
Expiration: 2025-12-27 (16 DTE)
Entry: $8.00 - $8.50 per contract
Stop: Close if underlying loses $408.00
Target 1: $12.00 - $13.00 (50% of contracts)
Target 2: $16.00+ (remaining 50%)
Time Stop: 5 days or when 8 DTE remaining
Contracts: 1
Max Risk: $1,000 (1% of account)
Selection Rationale:
- Delta: 0.45 (good directional exposure)
- Volume: 8,500 (solid liquidity)
- Open Interest: 32,000 (very liquid)
- Theta: -0.05 (reasonable decay)
- 16 DTE gives time for swing to develop
Swing Options vs Day Options
| Factor | Day (3-7 DTE) | Swing (8-30 DTE) |
|---|---|---|
| Time Decay | Moderate | Lower per day |
| Premium Cost | Lower | Higher |
| Time Horizon | Hours | Days |
| Gap Risk | None (close daily) | Present |
| Flexibility | Must close EOD | Can hold multi-day |
Swing Trade Options Risks
| Risk | Mitigation |
|---|---|
| Gap Risk | Position size conservatively |
| Theta Decay | Exit when 50% DTE remaining |
| IV Crush | Check for earnings, Fed |
| Liquidity | Verify volume before entry |