How to speculate intraday using options.

It can be said with confidence that options speculation is very effective. Especially in the short term, buying calls for long positions and buying puts for short positions can perfectly control risks and maximize returns.

Many people may say how bad options are, with the high risk involved, which is a fact, because options come with leverage and large fluctuations are normal.

Let's talk in detail today about why options day trading is very suitable.

First, let's take a simple example, like bottom fishing for Apple after last night's plunge.

Last night, Apple plummeted during the trading session, reaching -3.5% at one point. It was already very close to the 20-day moving average, just $1 away. However, during the session, it can be seen that once the trend pulled back to the intraday average line, it basically stopped falling. At this point, if you want to bottom fish, let's say buying Apple shares, because the overall market has been weak recently, all relying on Apple to support it, so Apple is likely still the backbone of the recent market. Therefore, if I start bottom fishing when I notice it's not falling further, and if I want to buy 100 shares of Apple, without leverage, it would require about $16,000. For many people, this is already difficult to operate, they may not even have that much money, but still want to speculate, this is where options come in handy.

We can take a look at the options of apple. I chose the ones expiring on December 17th, because the ones expiring soon are just too exciting to handle.

This is the option expiring on December 17th. You can see that the difference in price between adjacent options is 2.5. When apple started to rise last night, the price was about 160. I chose 165 at that time instead of 162.5 because the price difference for the 165 option would be smaller, with a premium of only around 3 points. It's not impossible for the option to rise in the money with such a small premium.

Let's look at the trend of the 165 call last night. If you start buying at the bottom of the rebound, you could have made approximately twice your investment last night.

This is not to show off operations. We can consider some points, such as why use options, and how to choose them.

1. Choosing options can effectively control risks. As the buyer of options, the maximum loss is limited to the principal. In the past few days, the US stock market has been very volatile, with many stocks suddenly experiencing drops. Account fluctuations can be significant. For example, if you wanted to buy 100 shares of apple last night without leverage, you would need at least $16,000. A 1% stock fluctuation would result in an account fluctuation of around $160. Taking apple's volatility last night into consideration, a fluctuation of a couple of hundred dollars would not be a problem. Profits are acceptable if the stock rises, but losses would be unpleasant, especially if it has already dropped by 3 points and the market is in a downward trend. However, with options, it's a different story. When apple dropped by 3%, a 165 call option expiring on December 17th was priced at $220. If you bought this option, the maximum loss would be $220, with unlimited profit potential. Especially when apple dropped to the support level yesterday, it would have been a good move to gamble with some money.

2. How to choose options for short-term speculation. It depends on individual risk tolerance. The closer the expiration date and the closer the exercise price is to the current price, the greater the volatility but also the more intense the speculation. Typically, it is advisable to consider slightly longer out-of-the-money options, ideally over a week, to avoid serious speculation within one week of expiration (the advantage is that there is less time value, but the downside is that if you choose wrongly, the remaining time value will decrease rapidly).

This is the apple call option with an exercise price of 165 expiring on December 3rd. The volatility was even more intense last night and at one point almost hit zero. I usually choose shallow out-of-the-money options with around 2 weeks remaining for speculation. To measure frontdegree, it mainly depends on the exercise price. For example, for apple options, a premium of 3 points is already quite high, which can be considered shallow out-of-the-money. For tesla, even 10 points could be acceptable. It mainly depends on the stock's own volatility.

Or we can look at an indicator, delta, and try to choose options with a delta between 0.4 and 0.5. These options can better reflect changes in the stock price. It's also preferable to have the delta value greater than the theta value to prevent a rapid decrease in time value from offsetting delta growth.

For example, the price of this options, if the stock goes up by 1 US dollar, the options will increase by 0.35 US dollars. However, as time passes, theta will cause the options to decrease by 0.7 US dollars. This options cannot reflect the changes in the stock price very well.

Of course, these indicators are all dynamic, reflecting the relevant relationship between the options and the stock dynamically.

3. Absolutely do not go all in. One options contract usually represents 100 shares. For example, if you bought the options for 200 US dollars yesterday, it represents the volatility of 100 shares of apple. The only advantage is that once you buy options, you directly limit the maximum risk within a certain range (this is an advantage of options over futures). You can calculate how high this leverage is. Assuming Apple's stock price is 160 US dollars per share, 100 shares amount to 16,000 US dollars. That means with 200 US dollars, you are leveraging 16,000 US dollars, which is nearly 80 times. If you have 2,000 US dollars in your account and you go all in, it's really similar to gambling.

4. The allure of options lies in leverage, that is, betting big with a small amount. By leveraging a very small position to control more chips, this is why many people use small accounts to trade options, really only needing a small amount of money. The most important thing in trading options is to survive, not to make a profit every time. As long as you can survive, continuously hone yourself, one day you will encounter explosive returns. However, before that day arrives, you must not fall. Be strong in certainty, don't always gamble.

5. Options are just a tool. Many people often say how easy it is to lose big with options. Take yesterday's Apple dip for example, buying 100 shares of Apple, if the dip fails for regular stocks, the loss may be even greater. With such recent market volatility, controlling losses is key, controlling drawdowns is the essence of growth. Of course, many people may not be able to afford 100 shares of Apple without participating in options (like myself). It's good to have the correct understanding of options. Options are just an amplifier, showcasing personal abilities very quickly. Therefore, when your abilities are insufficient, it's best to practice on a simulation account and focus on building your basics. $Apple (AAPL.US)$ $Tesla (TSLA.US)$ $Microsoft (MSFT.US)$ $NVIDIA (NVDA.US)$

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