True confession: When the Fed started raising interest rates at the fastest pace in a half a century, I behaved like a true groundhog: I dived into my burrow, put my trading funds in 3-month Treasury Bills, and watched the ever-increasing reward roll in with zero risk.

The reward isn’t increasing as much anymore. And I didn’t spend my months idly as I stuck to most boring investment possible. I’ve popped out on the surface with three options strategies and a trading calendar that will tend keep me trading every day, with quick turnover of my investment funds, which after months underground with T-bills, is definitely a plus.

The three strategies are identified by days to expiration at entry. Here’s a list and a discussion of each.

1DTE

This is the closest to day-trading that I come. I enter each position in the last hour before the closing bell, and exit within the first five minutes of the next day’s opening bell.

The structure is the iron fly. It’s a close cousin of the Iron Condor, but with the Iron Fly, the strike prices of the short call and short put are identical, both at-the-money.

I set the long call and put 30 deltas out from the shorts.

This works best with lower volatility symbols.

9DTE

This is the shortest directional trade that I’ll be doing. Nine days from expiration gives me some time to manage the trade — i.e., get out — if the underlying stock moves in the wrong direction.

I use Elliott Wave Theory to set by direction. That small DTE is perfect for trading the small wave degrees on a chart, such as a trending 3rd wave that lasts for a week. Close to expiration, a trade’s profit or loss tends to be greater than they when the options are further away from expiration.

As the structure, I use a short vertical spread — a bull put spread or a bear calls spread. I set the short option and long option strikes in a way that gives me a reasonable potential return and risk/reward ratio.

For verticals I tend to be OK with a risk/reward ratio no greater than 3.5:1. The nine days has some give. I might go 10DTE or 8DTE.

My goal to close out the trade four days prior to expiration.

This works best with higher volatility symbols.

45DTE

This has been my basic options trade for decades. It’s what I use when I want to trade larger Elliott Wave degrees.

The structure is the same as with the 9DTE strategy. The structure is a short vertical spread, with a risk/reward maximum of 3.5:1. I manage the trade 21 days before expiration.

This strategy also works best with higher volatility symbols.

When to trade?

That describes what to trade, which are standard options methods. When to trade is where the things get a bit more complex.

There’s the question of how often a symbol’s options can be traded.

1DTE: Three exchange-traded funds provide the greatest opportunity for the 1DTE strategy: SPY and QQQ, with options expiring daily, and IWM, with options expiring Monday, Wednesday and Friday. They will dominate the trading calendar for 1DTE positions because it allows five trading days a week for SPY and QQQ, and three trading days a week for IWM.

9DTE: Most highly liquid options, generally issued based on stock of high-capitalization companies, have expirations each week, on Friday. For for any given symbol, there’s one day a week that precisely matches the needs of a 9DTE strategy. As I wrote in the 9DTE section, there’s some give in the entry date, so this expiration schedule allows for trades three days a week, on Wednesday, Thursday and Friday.

45DTE: For this strategy I can trade any options issue I like with any strategy I prefer. I tend to use short vertical spreads with the occasional iron condor. Even with companies that issue new options each week, I tend to the use the monthly options because they have a small bid/ask spread. I have no set rule how much give there is either side of 45DTE as the entry point. I tend to use the week of 45DTE day (always a Tuesday) and the week prior to 45DTE week, giving a two-week window.

And there’s the question of what to do with major economic releases. There are three from the government that I think of as major market movers, potentially: The Employment Situation, the Consumer Price Index, and the Gross Domestic Product.

All three are released an hour before the opening bell, and that’s a surprise I’d rather not have on a new entry into a short-term trade with little recovery time — a 1DTE or 9DTE position. So on the day before those releases, I don’t trade those strategies.

I also tend not to trade the short-term strategies on Friday’s, just in case there’s a major market-devastating surprise over the weekend.

Having said all of that, here is my strategy for coming week. There are no major economic releases, so no days are blocked.

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Trading Calendar, week 11/6-11/10 

45DTE entry 11/27/2023-12/8/2023

• Monday
  • Enter 1DTE iron fly 1130U
    • IWM
    • QQQ
• Tuesday
  • Exit IWM, QQQ 0630U
  • Enter 1DTE iron fly 1130U
    • SPY
• Wednesday
  • Exit SPY 0630U
  • Enter 1DTE iron fly 1130U
    • IWM
    • QQQ
• Thursday
  • Exit IWM, QQQ 0630U
  • Enter 1DTE iron fly 1130U
    • SPY
    • Low IVR stocks with weekly expirations
• Friday
  • Exit SPY, other Thursday entries

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Documentation

As long-time readers will know, I tend to share my options trades online. It is a way of keeping a trading diary, always a good practice, my mentors have told me. Also, some people might find it interesting. In learning about options over the years, I’ve always found it valuable to see how others were setting up their trades. And someone might come up with a good suggestion, always a plus because my primary ethic is to learn.

In the past I’ve posted a report for each trade. Under the new system, my trading volume will be greater, and I plan to consolidate each day’s trades into a single report, which will be posted after the market close. It will be called “Options Trades” followed by a date in numeric form: 11/6/2023, for example. My calendar tells me that I have trades to place today, so look for it after the market close.

Pattern Day Trader

And finally, the elephant in the room: Being declared a pattern day trader by the SEC. Anyone with less than $25,000 in a brokerage account will be designated as a pattern day trader if they day-trade more than three times in a week. This article in Investopedia has the details.

Day trading isn’t a problem with the 1DTE strategy, as along as I don’t sell a position in the morning and then buy back into options of that same symbol in the afternoon. So I alternate my two daily expiration symbols, SPY and QQQ, to avoid that sort of mischance.

Basically, the answer is to stay aware of the problem and avoid day-trading above the federal limit.

By Tim Bovee, Portland, Oregon, November 6, 2023

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.