Placing Overnight Trades In ThinkOrSwim

[csricksdds]

(Note: My last post was oriented for newer traders whereas this post is for more experienced traders)​

I frequently place overnight trades (usually Monday thru Wednesday with Friday expirations). Trades are normally placed in the afternoon after 3 p.m. when, and only when, a stock makes what looks like its low for the day and indicators show a change in direction (and afternoon theta decay has reduced option cost). These trades should only be made on stocks with adequate daily/weekly volatility (4.0+ daily). One of my current favorites is AMD where trades can be placed around the 15-20 Delta area (as these are usually under $1/ contract). An AMD 170 Call was .75 late yesterday and opened this morning at 1.00.

After buying the option I placed a GTC at .79 which would have covered my position and cost of trade. With my .79 GTC in place the trade closed at open for 1.00. Why did it close above my GTC order? I’m glad you asked.

Option prices are mathematically set with new Bid/Ask prices taking place at market open. Option prices for a position are usually highest at market open. I have tested this theory multiple times and have frequently closed an option for a nice gain, sometimes a double, or occasionally more. Stocks frequently pop at market open and the goal is to capture that pop. So, what happens if the stock option opens for less than what was paid? The GTC order will not fill. I will cancel it and place another order for 25-50 cents more than what was originally paid for the option (in this case 1.04 – 1.19) since I now have 2-4 days for it close using the new GTC order (DTE depending on which day the order was placed). My experience is to rarely lose on these trades. Monitor them as you would monitor any other trade.

These can be great trades for traders who might be trading under Day Trading Rules (since overnight does not count as a day trade). Another way to avoid Day Trading Rules is to open a cash account which avoids those rules. A person can open a cash account by funding it with the maximum amount they want to put at risk, or an amount one can afford to lose. I personally have three different trading accounts, two regular accounts and one cash account. My favorite for day trading is the cash account.
My setup: https://usethinkscript.com/threads/agaig-best-trading-chart-setup.18436/

suggestions are for education purposes only​

 

[rfic123]

@csricksdds what criteria do you use to show a change of direction? Also do you usually select the nearest option expiration date? Thanks

 

[csricksdds]

@csricksdds what criteria do you use to show a change of direction? Also do you usually select the nearest option expiration date? Thanks

Of course I'm using my trading chart.

It shows multiple arrows and short/long designators for change in direction (remembering that they have the possibility to repaint).

I like for multiple arrows and/or short/long to be showing a change in order to place a trade.

I also use the 8/20 crossover as a potential change in direction.

A 21 EMA is a Fibonacci level frequently used as a turning point...I use the 20 EMA as a heads up to the approaching 21 EMA level.

Since I make these trades early in the week I generally use the upcoming Friday expiration.

 

[merrymee]

@csricksdds is there any video or screenshot to demonstrate this illustration please?

 

[csricksdds]

@csricksdds is there any video or screenshot to demonstrate this illustration please?

I’m sorry no video but good overnight trades are usually on pullbacks or overextends that expire in a few days with lots of open interest in the direction you want to trade. Using a spread is less risk and I usually trade the long position in the money (ITM) with the short outside the money (OTM). The short position will theta decay faster than the long position making for easier profitability if direction is correct. Overnight trades with future expiration help if it doesn’t work overnight.

 

[merrymee]

Thank you for your quick response! I really appreciate it. I’m going to look for some YouTube videos to better understand how overnight trades work and how I can start placing them on Thinkorswim using your charts (which by the way, is the best comprehensive indicator, I have ever seen in my enter life . I'm very eager to learn this and will dive deeper into these strategies!. Thanks again for your awesomeness!!