Day trading ETFs?
I’d like to trade options on some some ETFs; QQQQ, DIA, SPY, IWM. I’d like to stay focused on a few stocks and trade when they move. I’d prefer not to trade on news; just the technicals.
I use options so that I do not have to risk that much cash(5K) but willing to take the volatility of options.
What indicators and what confirmations should be used to make 1 day-trade per day? .03 – .06 per trade would be fine trading 40-80 contracts.
I currentl use QuoteTracker software using EMAs and WMAs, MO, TRIX and RSI as indicators.
I just can’t seem to get very successful using my settings.
What have you successfully used? What should I be using and what should I be looking for?
Dan
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March 19th, 2010 at 7:57 pm
Interesting….
The best thing about ETFs are that you are avoiding single-stock risk.
The worst thing would be the prices don’t move quickly enough.
So I would focus on the most liquid of them. This link pulls, at any moment, the 10 most actively trading ETFs:
http://custom.marketwatch.com/custom/xtf/html-top-etf.asp?symbpull=https://www.xtf.com/ResearchToolsAndResources/ETFRating/RatingService.aspx&screen=mostactive&ignore=3.841799E-02
Maybe your trading day could start with going through those, then finding the ones healthy enough to work with (my definition of decent health is they should be above their 200 day moving average). Then I would look at the daily stochastic/relative strength and buy the one that appears the most OVERSOLD.
I am sure that before the call option expires you could profit-take a modest gain of 1% or so this way.
If it starts to drop, you still might break even before expiration day. ETFs have a better resiliency than single-stocks do. Good luck!
March 19th, 2010 at 8:54 pm
I don’t have a great answer to the original question, but I want to point out that there is a serious error in the answer above. Purchasing the most liquid ETF’s options doesn’t make sense. The only way for one ETF to gain liquidity over another is by increasing its average daily volume. Volume usually works inversely of volatility.
She is correct that ETFs by definition are less volatile, so why would you want options (a bet on volatility) on the least volatile ETFs? You should only be interested in shorting/issuing them.