Green & Gone, with TheGreatRiver (vol 1)
I SPY Omicron

Trade analysis: SPY 460Put, 0dte



12/6/21



My name is River, and I’m pleased to join the team at Trade Talk Media to bring you this segment. At least twice a week, I’ll bring you descriptions of option scalp trades I made during the week with analysis and suggestions on how to make scalping simpler. Geared for newer traders interested in learning about scalping, I hope to provide useful approaches for learning how to scalp options. It is easy to make scalping complicated and get lost in the indicators. I scalp options most trading days, and I tend to keep it simple. If you are brand new to this concept, scalping makes fast profits from small price changes. Sometimes this is very fast holding times can vary from a few seconds to several minutes. To make it work, you need a high win ratio and a disciplined exit plan that keeps losses very small. There are many ways to approach it, and I tend to keep it very simple.


So, let’s begin this journey with an analysis of a SPY option scalp I made on December 1st, 2021.


SCALP THE NEWS

Some news items were hot and heavy, Jerome Powell seemingly retired the word "transitory," the supposedly incoming Santa Rally was taking its jolly sweet time to manifest, and the Omicron variant arrived in America. News like this can produce large amounts of volatility providing scalp entries both ways. With this news in the mix, I was on the hunt for put entries.


SCALP THE SAME THINGS

When you are new, I think it is helpful to scalp a handful of tickers repeatedly to get a deep understanding of how your preferred tickers move. Trading too many at once complicates things. And if you are in and out of the same tickers, learn about the wash sale rule…that is imperative! SPY is my main scalping ground I have probably placed 500+ SPY trades in 2021 so far. The charts you see are one-minute charts from the ThinkorSwim desktop software.


THE ENTRY

Entries are tricky when you are new to scalping. Data should inform your buy. This trade had several data points that made a good probability entry. Around 11:30, some decent sized selling volume bars produced a breach of the 34 EMA (see image 1). The 34 EMA seems to be a good indicator of reversals, but you need more than that for a confident entry. I liked that the downward pressure also had some volume at the two bars in the oval. Always check for volume to accompany levels being tested and broken. Though it is always wise to wait for a retest of any support, at that point there was 1) significant news shaking the market, 2) the 34 was breached with a volume pump and 3) I trust my ability to exit fast if scalps don’t go my way. Some people might want more, but that was enough for me. I went back a few candles and drew the one-line dotted resistance line you see, and I bought to open contracts of the 0dte 460 put. We were off to the races.





Image 1



HAVE A SIMPLE TRADE PLAN

Simplifying scalping has powerful practical benefits. Though the 34 EMA is on the chart, after entering this scalp I only paid attention to the resistance line I drew on the chart and the rules of my system. The 34 helped me enter, but after that it was a one-line affair.

After the suspected support or resistance is plotted, it becomes the gauge for the trade. Remember: all scalps might require an early exit. That is one of the benefits of scalping…if you are wrong, you know it right away. Once you enter, you have to be on the ball. So, the following is the strategy I use which is very similar to Seven Star Mike’s “trading with one line” video.

If the resistance would have been immediately broken to the upside, I would have sold-to-close following the close of three bullish candles, provided any one of them were not huge and volume laden. If that doesn’t happen, and the trade idea survives the first few candles, my exit plan otherwise is to sell after two greens open and close above the charted resistance…again, unless a green giant with volume erupts. Sometimes, depending on variables, I’ll wait for three candles to open and close above the resistance to close. You generally don’t lose that much money waiting one extra minute, and often it reverses your way if you remain patient. But as always, know your risk tolerance and plan accordingly.

That is the plan those are the rules. No arbitrary percentage gain or number of dollars made. No indicators to watch…just mind the resistance line and obey the rules above like Gospel Hellfire Truth.

Trading is difficult. The simplicity of this approach is what appeals to me. There are no exit criteria to consider except “have two candles opened and closed above the resistance line?”

HOLD FAST TO RULES WHEN THINGS GET WILD

Scalping puts your concentration and trading psychology to the test. Six minutes into the trade (see image 2) you can see the resistance clearly breached with a green candle opening and closing above the line. My trigger to exit is a minimum of two bullish candles opening and closing. I have done this many times, but still the self-doubt enters when the resistance is broken and one candle forms and closes above it. It is illogical, but fear enters with the close of the first candle to breach support or resistance. That fear must be acknowledged and controlled. No one is a robot.





Image 2



The second candle did open and close in the “closing zone,” but it was bearish. In fact, the 34 EMA was retested and held as resistance. As it turned out, had I exited in fear in violation of my rules, I would have closed right at the very moment before the resistance was confirmed. Many traders will often wait for a drawn support or resistance to be retested before entering, and I often do as well. Today’s wild news, however, made me enter when I did. Image 2 shows the 34 holding, and the trade becoming stronger. The trade continued downward.


HOLD FASTER TO RULES WHEN THINGS GET WILDER

A few minutes later we get into a really key area of this particular trade as seen in image 3. That huge green candle ten minutes into the trade dimmed the expanding calm in my chest, and the green open-and-close-above-the-line inverted bullish hammer almost did me in. The close of the inverted hammer was a key psychological test in this trade.


Hammer candles can often signal reversals, so I had my finger on the sell button for sure. The second candle closed bearish, and…remember… the rule is to sell after the second green candle opens and closes above the resistance. Even though I was well aware of that, I was close to selling half of the position in the spirit of securing those profits.





Image 3



KEEP P&L OUT OF IT

Note that I wasn’t aware of the actual profit at this point…I try to keep P&L out of it during a trade and let the chart tell me when it is time. That doesn’t always work for me, but it did this time. However, at that point the second green candle did not materialize and down the slope we continued. In fact, even though the resistance line is the main metric for this trade I understood the 34 was once again tested and found worthy. The more data-driven your trade decisions are, the higher your win rate will be. If I had been focused on P&L, I would have been more likely to sell. And as it turned out, this would have been a terrible place to exit the trade. So, a great way to simplify the psychology in scalping is to try to remove P&L from the picture…let the chart and your plan dictate when to sell.


A few red candles and a weak green continued the downtrend and then the big drops happened, and I felt more secure that I make good life decisions. At this point I was officially glad I wasn’t aware of the P&L.


KEEP EXITS MECHANICAL

As image 4 displays, the exit criteria for this trade were clear as day.





Image 4



Eventually, another big green candle erupted (with volume) followed by two more opening and closing above the resistance. It really doesn’t matter, but the second green being notably more bullish than the first was more data telling me the dance is over. Mechanically, that cued my exit. And that was that.


When you are learning scalping, I believe there is a tendency to hold on to both losing and winning trades too long. That second part may sound strange but remember that scalping’s goal is to secure pieces of moves…the goal is not to time tops and bottoms. Frequent quick profits are the goal. Sure, sometimes scalps catch really big moves, but that shouldn’t be your goal. Do not pass up a 150% gain on an options contract in hopes of getting 500% (or any other arbitrary goal). Scalping is quick buying and selling. Secure those profits…be Green & Gone!


TRADE REVIEW

See image 5 for a review of this trade, from open to close.





Image 5



As you review this chart of the entire trade, you might notice that right after I exited the 34 EMA failed as resistance for the first time since entry. Again, the exit rule does not incorporate the 34 EMA, but it was nice to see the 34 was a good metric for this trade after the fact.


Altogether, this scalp generated a very nice gain per contract. Remember this: once you close a trade, it is past tense. Admittedly that mindset takes a while to develop, but it is important you develop it. Traders will often follow an option price after they leave it and feel distress over closing out too soon, feeling as if they missed out on hundreds or thousands of dollars due to bad exiting. Don’t compare your profitable decisions to hypothetical decisions that could have been more profitable. No one has that crystal ball!


If you keep scalping simple, it is easier to resist that mindset. If it was a green trade, I don’t worry about it. And yes, I am aware that December 1st, 2021, was the day the Omicron variant was found in the United States and the market declined sharply. Those put contracts went on to gain many hundreds of dollars more than from where I sold them. But that was no longer my trade.


It was the past…dead and gone. And no worries here. It was a very good paycheck for 25 minutes of work in the clear light of my inner trading world. All charts are stories. It was a moment in time, and I was Green & Gone.


-River

Follow River on Twitter @GreatRvr

An instructor at BlackBoxStocks, River also hosts the forthcoming podcast, Riverside Chats: Deep Dives into All-Things BBS