The market had a slight downtrend during pre-market hours today and was caught in a range until 11am (FED meeting). The Spy odte options on both sides were a bit more expensive than usual (indicates a huge swing in one direction coming) waiting it out until the FED made their decision regarding “basis points” rates.
Spy 603 PUT (0dte options)
The chart above shows the Spy 603 put strike (Wednesday Dec 18, 2024), now let’s dive into some of the ways to trade with this 0dte option. As you know, the options chart follows the Spy and ES with some slippage due to theta decay, so trading ATM (at the money) or near OTM (out the money) is best unless there is an extraordinary event about to happen. Loading up on zero day options further “out of the money” is not wise until the event takes place.
The market was flat yesterday as expected making way for today’s Fed decision on rates. The Fed cut .25 basis points. See what Fed chairman Jerome Powell said here.
Entry Point:
From the chart above, a good entry point would have been at the .30 price right around the 11:03 am mark after the Fed decision was made. Spy then tanked dramatically until the end of the day, bears were in serious charge. Great entry points throughout the day were available on several option strikes. A stop-loss would not have been triggered below .30, good opportunity to just let it ride.
Exit Point:
The best overall exit point would’ve been around the 15.97 mark at 12:45 pm (pst). The chart indicators (moving avg, bollinger bands, RSI, CCI) on the Spy & ES were hungry for more red. Traders were waiting for the rate decision and not making big waves until then. The volatility to the downside was increasing after the rate cut decision as the day went on.
This 0dte options trade (PUT) scenario represents a 53.2x, meaning a 5,320% profit could be made from this 1-hour and 45 minute trade. The other PUT strikes OTM (further out of the money) were gaining steam rapidly as the volatility to the downside was extremely strong. The Call options today had no love at all. Profit taking could’ve been made several times, but this scenario represents IF you held through for the best profit point.
Profit Example:
- 100 contracts bought at .30 ($3,000 investment)
- 100 contracts sold at 15.97 ($159,700)
- Minus $3,000 investment = ($156,700)
- Minus 100 contracts cost at .65 ea ($65)
- Total Profit: $156,635
Key Things to Watch:
- Watch the charts on Spy, ES, and the option strike price simultaneously, make adjustments or change 0dte options strike prices if need be.
- Technical indicators on SPY supersede all else when trading their option from their option chart like above. (same for other stock symbols)
- Keep on eye on Level 2 (Bookmap heatmap is best) signaling demand on the ask/bid side (try to stay under 200 – higher = slower fill rate).
Conclusion:
Spy felt the pain of the Fed dropping rates by a quarter of a point, with more coming in 2025. The 5-minute, 15-minute, and 1-hour chart time frames shows the “checklist” scenario with the 1-minute giving key insights for fast in/out scalping. There is still a gap open on the Spy at 576.74 (from November 6th, after the Presidential election) and it’s not far from filling soon. Possible more downside coming to close that gap.
- This type of day trading scenario (extraordinary event) can happen once a month or so when buying and selling odte options (Spy and QQQ only offer “zero-day-to-expiration” options at this moment). Snagging a trade like this is very possible when big news or an expected event hits.
If you miss it today, you may be able to catch it tomorrow…
