The Best Options Day Trading Strategy for Beginners

15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

This simple, profitable trading guide teaches stock options trading for beginners. The strategy applies to the stock market, Forex currencies, and commodities. In this article, you will learn about what options are, how to buy Put and Call options, how to trade options, and much more.

If options trading isnโ€™t for you, try our Harmonic Pattern Trading Strategy. Itโ€™s an easy step-by-step guide that has drawn a lot of interest from readers.

The Trading Strategy Guides team believes this is the most successful options strategy. When trading, we adhere to the principle of KISS: โ€œKeep it simple, Stupid!โ€ With simplicity, our advantage is having enormous clarity over price action.

Weโ€™ll be focusing on BUYING Put and Call options through this options trading tutorial. Selling options is a different animal. It requires more experience to fully understand the inherited risks. Why? Well, because you canโ€™t control the downside, the same way you do when you buy Put and Call options.

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Before we begin, thanks for visiting Trading Strategy Guides (TSG)! We are so glad youโ€™ve found us. You have discovered the most extensive library of trading content on the internet. Our aim is to provide the best educational content to traders of all stages. In other words, we want to make YOU a consistent and profitable trader.

If youโ€™re a brand new trader, we recommend hopping over to our ultimate beginnerโ€™s guide to trading to learn more.

This is the most successful options strategy because it consistently provides profitable trade signals, and thatโ€™s not because it doesnโ€™t have losses. The preferred time frame for the best strategy for options trading for beginners is the 15-minute time frame.

We will first define what buying Put and Call options are. After that, we will give out the rules for the best options day trading strategy. Here is another strategy called The PPG Forex Trading Strategy.

What Are Options?

Options are a specific type of derivatives contracts. The underlying securities can be stocks, indexes, ETFs, or commodities. With a derivatives contract, you do not directly own the underlying asset. Instead, you own a related asset whose value is affected by changes in price.ย 

With an options contract, you have the right to buy or sell an asset at a predetermined price in the future. When that future point arrives, you will have the choice to exercise the option or let it expire.

For example, letโ€™s say the asset is selling for $110; a contract giving you the right to buy at $100 will have an intrinsic value. As the expiration date approaches, the value of the options contract will adjust.

There are two different types of options:ย call and put options. When used correctly, options trading will make your strategy much more dynamic. Letโ€™s dive into the next section.

What Is a Call Option?

A call option gives you the right to purchase an asset in the future. If exercised, this purchase will occur on a predetermined date. It will also occur at a predetermined value. Moreover, if you are unsure about the future value of an asset, a call option can offer some protection.

Stock traders commonly purchase call options. However, they can also be found in many other markets. In fact, call options are the most commonly traded option contracts.

What Is a Put Option?

A put option gives you the right to sell an asset in the future. Like call options, these contracts have predetermined prices and sell dates. Put options and call options are often purchased together in order to make a โ€œhedgedโ€ position.

Below, we will discuss the different types of options sales. We will then discuss how these sales can be introduced into your trading strategy. You may also enjoy this article about options vs futures.

Different Types of Option Sales

It is necessary to remember that an option is a contract that allows you to purchase an asset at a specific price in the future. There are four different types of options sales that can possibly occur. The differences between short and long sales, as well as puts and calls, will be very important.

  • A long-call option will give you the right to buy an asset at a specific price in the future. Long-call option holders will benefit from price increases over time.
  • A long-put option will give you the right to sell at a specific price in the future. Contrary to call options, long put option holders are hoping that market prices will decrease.
  • A short-call option gives you the right to sell not the underlying asset but the option itself in the future. Because the โ€œlogicโ€ of short positions is reversed, short-call option holders are in similar positions to long-put option holders.
  • A short-put option will hope that long-put options become less valuable over timeโ€”consequently, holders will be rooting for prices to go up.

Once you understand the different varieties of option sales, you will be able to engage in more complex trading strategies. These strategies will usually involve purchasing multiple different options in order to manage risk and increase the possibility of earning high returns.

Why Use Options?

Options are used for speculation or hedging. Hedge fund managers are notorious for using advanced risk management strategies to hedge their market exposure.

Options offer high leverage, giving you the chance to trade big contracts and potentially make more money. This is the same for Forex. You need a smaller initial investment than buying stocks outright. When buying options, the risk is limited to the initial premium price paid.

When using options, the risk is limited, but the potential profit is theoretically unlimited. Obviously, we say theoretically unlimited profits. However, options prices are going to be range-bound within certain parameters. Thereโ€™s no stock price to rise to infinity. Also, read this article on Paper Trading Options โ€“ The Secret to Riches.

Types of Options Strategies

You can take your trading beyond basic call and put options. That is the beauty of options trading. Other trading strategies include covered call, married put, bull call spread, bear put spread, and more. They can help you better manage your risk and seek new trading opportunities.

If youโ€™re a versatile trader, take advantage of the flexibility that options trading can give you. Study the top 10 stock options trading strategies below:

  • A covered call strategy or buy-write strategy โ€“ implies buying stocks outright. At the same time, you want to sell call options on the same stock. The number of shares you bought should be identical to the number of call options contracts you sold.
  • Married put strategy โ€“ implies buying stocks outright. At the same time, you will buy put options for an equivalent number of shares. The married put works like an insurance policy against short-term losses.
  • Bull call spread strategy โ€“ implies buying call options with a specific strike price. Simultaneously, youโ€™ll sell the same number of call options at a higher strike price.
  • Bear put spread strategy โ€“ itโ€™s similar to the bull call spread but involves buying and selling put options. In this options strategy, you buy put options with a specific strike price. At the same time, sell the same number of put options at a lower strike price.
  • Protective collar strategy โ€“ implies buying an out-of-the-money put option. At the same time, sell or write an out-of-the-money call option for the same stock.
  • Long straddle strategy โ€“ implies buying both a call option and a put option at the same time. Both options should have the same strike price and expiration date.
  • Long strangle strategy โ€“ implies buying both an out-of-the-money call option and a put option at the same time. They have the same expiration date, but they have different strike prices. The put strike price will typically be below the call strike price.
  • Butterfly spread strategy โ€“ implies using a combination of the bull spread strategy and bear spread strategy. The classical butterfly spread involves buying a one-call option at the lowest strike price. At the same time, sell two call options at a higher strike price and then sell one last call option at an even higher strike price.
  • Iron condor strategy โ€“ involves holding a long and a short position in two different strangle strategies.
  • Iron butterfly strategy โ€“ involves using a combination of either a long or short straddle strategy. At the same time, buy or sell a strangle strategy.

Now, letโ€™s turn our focus back to the most successful options strategy.

Letโ€™s define the indicators you need for one of the best options trading strategies for beginners and how to use stochastic indicators.

The only indicator needed is the RSI or Relative Strength Index.

The expiration date factor constrains options trading. So, itโ€™s essential to select a technical indicator that is suitable for options trading.

Moreover, theย RSI indicatorย is a momentum indicator, which makes it the perfect candidate for options trading. This is because of its ability to detect overbought and oversold conditions in the market.

The Rsi Indicator For The Best Options Trading Strategy
Options stock1

The RSI indicatorโ€™s location is on most FX trading platforms (MT4, TradingView). You will find it under the indicators library.

Now, how does the RSI indicator really work?

The RSI uses this simple math formula to calculate the oscillator:

Rsi Options Trading Formula For Calculating The Oscillator
Rsi formula

There is no need to go further into the math behind the RSI indicator. All we need to know is how to interpret the RSI oscillation. Basically, an RSI reading equal to or below 30 shows that the market is in oversold conditions.

An RSI reading equal to or above 70 shows the market is in overbought conditions. At the same time, a reading above 50 is considered bullish. On the other hand, a reading below 50 marks is considered bearish.

The preferred RSI indicator settings are the default settings with a 14-period.

Preferred Rsi Indicator Settings
Options stock2

Before going any further, we recommend taking a piece of paper and a pen and noting the rules.

Before we delve deep into options, you should check out our free stock trading class by clicking on the banner below and learning to trade like a pro today.

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Letโ€™s dive into the options trading tutorialโ€ฆ.

Most Successful Options Strategy (Steps to Buy Call Options)

In this part, weโ€™ll talk about the necessary steps that you will need to take to execute this options day trading strategy. Letโ€™s start with the first step.

Step #1: Wait 15 Minutes after the Stock Market Opens to Establish Your Market Bias.

The most successful options strategy isnโ€™t focusing only on the price. It also makes use of the time element, the same as weโ€™re doing here.

Furthermore, the stock market opening price is usually the most important. During the first minutes after the stock opening bell, we can note a lot of trading activity. This is because thatโ€™s the time when major investors are establishing their positions in the stock market.

Read Day Trading Price Action- Simple Price Action Strategy. Youโ€™ll learn about a strategy that isnโ€™t restricted to the time element and focuses on price action. Itโ€™s one of the most comprehensive guides to successfully trade stocks or other assets by simply using price action.

Our team at Trading Strategy Guides wants to develop the best options day trading strategy. In order to do that, we have to think smarter. We have to track how the smart money operates in the market.

The best strategy for options trading for beginners will not keep you glued to the screen all day. You only have to know when the stock markets open.

The NYSE opens at 9:30 EST or 1:30 PM GMT time for those trading from Europe.

Stock Market Oppening Time
Options stock3

This brings us to the next step in our options trading tutorialโ€ฆ

Step #2: Make Sure the 15-minute Candle after the Opening Bell (9:30 EST) Is Bullish.

As we have established earlier, we only want to trade in the direction where the smart money is. If weโ€™re looking for a buying call options opportunity, we want to make sure smart money is bought after the opening. Conversely, if weโ€™re looking to buy put options, we want to see sellers appear right after the opening bell.

Noticing If The 15-Minute Candle Is Bullish
Options stock4

Important:ย If we have an opening gap, it means the buying power is even stronger, and we should put more weight on this trade setup.

Step #3: Check If the RSI Is above 50 Level โ€“ This Is a Bullish Momentum Signal.

We use the RSI indicator for confirmation purposes only, and we want to ensure that once we have identified the bullish price action, the momentum behind the move is confirmed by the RSI indicator. Weโ€™re not concerned with overbought and oversold conditions because the market can stay in these conditions longer than you can stay solvent.

Checking If The Rsi Level Is About 50
Options stock5

In the chart above, we can note the RSI is well above 50 during the first 15 minutes of trading. The price action is confirmed by the RSI momentum reading.

Now, letโ€™s jump and define where exactly we want to enter our buy-a-call option.

Step #4: Buy a Call Option Right at the Opening of the Second 15-minute Candle after the Opening Bell.

Now that we have confirmation that smart money is buying, we donโ€™t want to lose any more time, and we want to buy a call option right at the opening of the next 15-minute candle after the opening bell.

As easy as it sounds, this strategy only requires you to put in 15 minutes of your time each day. Youโ€™ll either get a signal or not, but in order to take advantage of the best options day trading strategy, you need to exercise discipline and not take any trades if you donโ€™t have any signal.

Buying A Call Option At The Opening Of The Second 15-Minute Candle
Options stock6

So at this point, our trade is running and generating income, but we still need to define when to exercise our call option and take profit.

Step #5: Choose the Nearest Expiration Cycle. For Day Trading, Select the Weekly Cycle.

When you buy a call option, you also have to settle an expiration date as part of that contract. You might be asking yourself how to choose the right expiration cycle.

Well, because we will most likely sell our call option the same day we purchased it, itโ€™s more appropriate to choose the weekly cycle.

Itโ€™s time to switch our focus to the most important part: Where to takeย PROFITSย and sell your call options.

Step #6: Take Profit and Sell the Call Option as Soon as You Have Two Consecutive 15-minute Bearish Candles.

Knowing when to take profit is as important as knowing when to enter a trade. We want to get out of our position as soon as we see the sellers stepping in. Also, we measure this by counting two consecutive bearish candles as a sign of bearish sentiment presence in the market.

You donโ€™t want to exercise your long call option because you donโ€™t want to own those share stocks. Instead, you just want to make a quick profit.

Taking Profit And Selling The Call Option
Options1

Note:ย The above is an example of a buying call option using the options trading tutorial. Use the exact same rules โ€“ but in reverse โ€“ for buying a put option trade. The figure below shows an actual buy-put options example using the options trading tutorial.

15-Minute Chart Trading Example
Options2

Weโ€™ve applied the same, fromย Step #1ย throughย Step #4, to help us establish our trading bias and identify the buy-put option trade and followedย Step #5ย throughย Step#6ย to determine when to sell your call option.

Selecting the Options Contract Thatโ€™s Right for You

Now that you understand how to successfully trade options, you will want to know how to choose the contracts that are right for you.

All options contracts will have some degree of risk. This is especially true when trading binary options. Moreover, this is due to the fact that options can potentially be worthless on their expiration date. The risk of trading options can be managed.

When selecting options, keep the following things in mind:

  • Your personal level of risk tolerance
  • Your desired trading timeframe (day trading, long-term trading)
  • The volatility of each prospective asset
  • Past returns on options contracts

Options contracts also have high levels of implied volatility. During the first 30 minutes of trading, options contracts experience large changes in value. When volatility is high, both the level of risk and potential reward will be higher.

During this time, your trading strategy will need to be much more active. Risk can be managed by issuingย stop orders. It can also be managed by hedging your position and diversifying your position.

Both call and put options can be very rewarding. In order to prepare yourself as an options trader, it will be a good idea to practice. Fortunately, Trading Strategy Guides makes it easy to hone your skills and enter new markets. Carefully combining the steps mentioned above can help you unlock the best options trading strategy.

Final Thoughts about the Best Options Day Trading Strategy

This is one of the most successful options strategies because when trading stocks, itโ€™s important to have a good understanding of the market sentiment and how the big players are positioned in the market. Another important reason why this is the best options trading strategy is that youโ€™re not required to be glued to the screen all day long.

Donโ€™t forget also to read our Support and Resistance Zones โ€“ Road to Successful Trading one of the most comprehensive guides to successfully trade stocks or other assets by simply using support and resistance levels.

Thank you for reading!

Please leave a comment below if you have any questions on How to Trade Stock Options!

Also, please give this strategy a 5 star if you enjoyed it!

The Best Options Day Trading Strategy Video

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15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

21 Comments

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    • Folks,
      What about the implied volatility? You mentioned nothing about it and I believe during the first 30 minutes of the open, the volatility is very high. This means buying calls and puts are very expensive; so you might be ending losing money even when the underline follows your trade direction. This means that if the underline jump is not big enough (up or down); you are not going to be successful with this strategy. However, if a low volatility issue can be found, that would be awesome.
      P

  1. Very interesting and unique! I have an interest in trading Options but have as of yet stayed away. A couple things here:

    1) You did not discuss โ€œHowโ€ to select a stock to trade. Not knowing the Stock Market very well (I am a Forex Trader), I would have no idea how to go about selecting a stock to apply this strategy to. Also, are you suggesting only trading one Stock per day or can we trade multiple stocks?

    2) A little confused over only โ€œbeing in front of the computer 15 minutes per day.โ€ Donโ€™t you have to check the trade every 15 minutes to see if you are getting 2 opposite colored candles to exit the trade? In the Apple Example, you would have to check every 15 minutes for about 5 hours when the TP signal came. Maybe you have an indicator that beeps or notifies us by texting when these 2 candles happen?

    3) You suggested that Forex and Commodities can utilize this Strategy but you didnโ€™t say how. Do we apply the same 15 min. Candle strategy at the opening of each Currency Market and then wait for 2 opposite candles? As a Forex Trader I would be interested in your thoughts here.

    Thanks for providing these free Strategies. It really shows your interest in helping us succeed.

  2. es miy importante tener su dinero en los traders ya que la superintendencia de bancos dominicana la agino los 715000 pesos a aridio castillo dicendo que yo no tengo documento de identidad y la del ban resrvas el prm y el grngo de los palmares amenazan con hacer desordenes en la capital

  3. Dude, I donโ€™t see the stop-loss part in this tutorial, we canโ€™t afford to Lose all in an intraday option trading right.

  4. ABSOLUTELY THE BEST TUTORIAL I HAVE SEEN IN 4 MONTHS OF LOOKING AND READING. I LOVE THE DETAILS THAT ARE MISSING IN MOST. EXPLANATIONS ARE EASILY UNDERSTOOD.

  5. hi,for selecting our option trading,what should we check in the first 15 min, whether the stocks bullish candle or bullish candle in option that we have selected.expecting your reply. so that i can jump into trade.

    • You mentioned a lot of names options in trading options, can I have the list of all options trading to learn what is what and the options to predict what stagtergy to go with.

  6. very good explanation on trading. I knew most of information, but learned a lot from the simple and easy to understand explanations.

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