How to Day Trade the SPX Using Butterflies

For today’s Five Star episode, I wanted to highlight what my colleague and fantastic trader, Allison Ostrander has been up to. She has been crushing it in our Simpler Options trading room, and her own Mastery service, using day trading butterflies on the SPX. I’ve loved watching what she’s doing, especially because, as you know, I’m a huge fan of the options butterfly strategy myself! What is cool about what she is doing is that she uses them as a part of a day trading strategy, and trades them within the last hour or so of the cash session, just prior to the market close. With the way that she does this, she’s able to grow a small account, without using up day trades. This is really critical for options traders attempting to grow a small account because current rules suggest that you can’t day trade more than 3 times per week if you have an account with a balance of less than $25,000. However, because she uses a vehicle (the SPX) in which the options series expires daily, she’s able to get around day trading rules – and can use her strategy every day of the week, if she so chooses!

I still haven’t been able to figure out how she picks her winning strikes, but I’ve seen her do it time and time again! So, I wanted to bring her work front and center so you can get a new take on how to use my favorite strategy in the options market, the butterfly!

As such, please welcome Allison as a guest author today. While I’m on maternity leave later this fall, you’ll be hearing a lot more from her! Check out her trader page and profile by clicking here to learn more. 

How Day Trading SPX Lotto Pins into the Close Can Create a Better Win Rate

Trading SPX into the close has been one of my main strategies to trade in this volatility. It allows me to focus on the market only for the last hour, I hold no overnight risk and know exactly where I stand (profit or not) at market close, and it can take these trades for a small capital risk and allow for excellent profit potentials.

Even though I usually let these trades Cash Settle the focus on risk, and the risk vs reward ratio, has allowed me to stay profitable throughout the year on a 40% win rate. I often times let it cash settle because I trade small accounts and am limited on my Day Trades. 

For those who are able to Day Trade, then you may consider adding this strategy to your toolbox because it still has all the benefits I mentioned above, but the added bonus is Day Trading this strategy has allowed for a better win rate of 75%. The reason why is because often times the SPX trade I open moves towards our strikes to test them and allows for a day trading profit based on the entry. The downside to a cash settlement is you are up to the whim of the close which sometimes can gap the price back out of the money on the strikes. Here was a trade idea I took where Day Trading would have allowed for a better win.  

 

Here was my entry on the trade, notice the Risk was only 1.15 per contract, very small vs the max profit potential of 8.85. Below is the intraday chart setup for this entry.

 

Notice on the low of the move into the close the underlying price went in the money of the strikes and allowed for a profit to be taken by day trading. In the snapshots below you can see what the butterfly was worth going into the close. 

 

 

Here are also some people in the Profit Recycling Mastery who mentioned taking it off for the Day Trade win.

 

 

Unfortunately, if you flip back to the chart you can see right after testing the lows there was a bounce up that happened right into the close that took me back out of the money on my strikes at cash settlement. This is a great example of how Day Trading this strategy can lead to a much higher win rate vs letting it cash settlement. 

For those limited on Day Trades like I am, don’t fret! The majority of the time I have let this strategy cash settle, and I am still profitable for the year on this strategy because of the focus on risk and risk vs reward. 

For those of you who want to learn more about this strategy please feel free to watch the recording of the live webinar I did last night talking more about this strategy below!

 

 

 

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