On the surface, the intraday trading strategies of equities and non-directional options spread trading would seem to be mutually exclusive. Day trading depends to some extent on strong directional movement that allows the day trader to get long or short a stock at at the right time and then ride that direction until an opportune time to exit emerges. Non-directional options spread trading (income options trading), on the other hand, thrives when the market channels tightly, making no serious moves in either direction. So it’s smart to question whether the two trading styles are mutually exclusive.

My conviction is that the two disciplines are actually complementary to each other. Here are my reasons:

1.  The greatest time periods of focus for most day traders are the  first and last hours of the trading day. Most experienced and successful options-spread traders avoid those hours of the day and prefer to enter and exit their positions between the first and last hours, so as to avoid substantial movement while executing strategies where a great deal of movement during execution can be problematic.

2.  The time frame of a day trade can be less than a minute or as great as many market hours, but for pure intraday traders, positions must be exited before the closing bell. The majority of income options trades take place over a one- to three-month time horizon. So to say that a big market move is “bad” for an income options trade is an oversimplification. A move big enough to allow a day trader to thrive may be close to irrelevant to an income options position, which is built to profit within a range of market prices over, typically, a 30-90 day period.

3.  Most day traders develop a fairly good feel for market direction, not just intraday, but over longer time frames. Once traders learn the basics of income options trading, they can enhance their returns by leaning their positions using their market bias. A calendar spread placed below the market in a low volatility environment will be much cheaper to buy and will appreciate much more quickly if a trader’s bearish bias is correct.

4.  When I took SMB’s intraday equities Foundation program last fall, I found that day trading and staying on top of my options income trades was an  easy balance, for many of the reasons I’ve already mentioned.

5.  I know plenty of guys who do both very successfully. The successful ones usually learned how to trade options without a directional bias at first, then, when they became competent, learned how to merge their directional bias with their non-directional trading skills to enhance returns.

Has anyone had an experience to the contrary? If so, I’d like to hear about it. Perhaps we can  learn from the experience and come up with a solution.

Seth Freudberg

Director, SMB Options Training Program