Options day trade example. Swing trade entry.When the $DJI was up 200pts this afternoon, I was skeptical it could stay that high so I started looking at DIA. I also have a bearish bias right now on the markets. I prefer options on DIA vs SPY because SPY options are wilder and more volatile. People using gamma and delta strategies make it harder for "simple" long option traders like me. I only trade this index when I have a strong setup.
DIA was around 365 and I saw this as a resistance area. I bought weekly 364 puts for a day trade and as I started creating this chart the index dropped fast. I have exited most of my puts and will close the rest today.
In general, you should have a consistent set of indicators/signs that you use with success. Then you can spot a good setup quickly. The charts show you what I saw. I am leaning bearish on the daily chart, and RSI supports my idea (reversal under 65 after dip below 33.33).
Daily stochastic gave a warning sign (red arrow), so after the strong reversal rally I am looking for price to move below the channel, back to 355. If you use 365 for a swing trade entry and the index continues up to the top of the channel, the stop losses would be between 365.20 and 366, so this is a low-risk options trade.
For today's trade I used the 30m and 5m charts. Many traders (me too) get stuck watching price action and forget to sell at identified targets. 362.80-362.50 was my range to exit puts, and I held some for more downside or to exit green before end of day.
*** As I post this, 363.50 is also a good swing put entry on 30m chart, but I would use a smaller position and hold through price swings.
