Is It Possible to Day Trade Stock Options?

Yes, but…

Disclaimer

For over 5 years, I have been trying to learn the ins and outs of the U.S. stock markets, diving into fundamental analysis and technical analysis. Despite those 5 years, I consider myself quite the novice. I have only scratched the surface of trading and investing knowledge. This article is thus not meant to be comprehensive but based on what I currently know through my own experiences.

Day Trading Options: Possible but Challenging

Can you day trade options? Yes. However, I wouldn’t recommend it as a general rule. And your chances of long-term, consistent profits are slim without very specific circumstances.

The Two Big Issues with Day Trading Options

Bid/Ask Spread

Let's start by discussing the Bid/Ask Spread. This is a crucial concept in options trading. As of Sunday, January 31, 2021, let's assume you want to purchase a SPY Call with a strike price of 375, specifically the March 31 quarterly. The Bid is currently $12.22, and the Ask is $12.35, meaning the Bid/Ask Spread is the difference between these two prices, which is 0.13.

No savvy trader wants to pay the full price. For the sake of argument, assume you pay 12.35 per contract. If you wish to sell it immediately after, the best price you can get is 12.22 per contract. That's a loss of $0.13 per contract, totaling $13, or just over a single dollar.

The key here is that to profit intraday, you must first cover the Bid/Ask Spread. In our Call Option example, the stock price has to rise to a point where you can sell it at the price you paid. Then it must go up further to realize a profit. This works against you when trading on a truncated schedule.

Implied Volatility

The concept of Implied Volatility (IV) is complex, and even after intensive study, there is still much I don't understand. However, I do understand that entering a Call Option on the "wrong side" of Implied Volatility can still result in a loss, even if the stock price goes up. Conversely, entering a Put Option on the wrong side can still result in a loss if the stock price goes down. A quick internet search will provide more detailed information, but IV can significantly impact your trading results, especially when trading on a truncated timetable.

The Psychological Aspect

I have only addressed two critical aspects of options trading that can ruin your chances of successful day trading. There is a lot more to it, and that doesn't even consider the psychological temperament required for this type of trading.

A Novice's Perspective

I reiterate that I am a novice. I have just enough knowledge and experience to be scared away from things like day trading options. This does not mean it can't be done successfully or that it isn't done successfully by some traders. I have even bought and sold options intraday. However, in every case, my approach was guided by a longer-term endgame, looking to capture a market swing.

In a few rare cases, my exit condition did occur within the day, but that was not my planned strategy. That's just the way it happened.

If this is something you really want to do, you will need vast amounts of market knowledge and a very specific psychological temperament.

I hope this helps answer your question.