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Scalping

Market Awareness is Key (5 of 6)

Scalping

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Knowing when you can and should scalp is a key part of your success and this segment on market awareness, the fifth in a six part series on scalping for electronic traders provides some hard data you can use. Anyone who wants to scalp can benefit from watching this.

One important reason we scalp is to stay engaged in the markets. This holds true if we are actually scalping or deciding the day is not right for scalping. We present here hard data to show when you should consider scalping and when you should not.

The formula for the expected move is:
Expected move = +/- Spot Price x Implied Volatility x DTE/365.

A table using the SPY (S&P 500 ETF) was displayed. The table showed the percentage of days the SPY was within 1/2 of the expected move, the intraday range was greater than 1/2 the expected range but less than 1.5 the expected move and the intraday range was greater than 1.5 times (plus or minus) the expected move. The tables results showed that the markets had favorable scalping opportunity 66% of the time (the middle range). Tom and Tony explained why you want to scalp only on those type of days. A bell curve graph helped their explanation.

The current correlation between S&P 500 and the Nasdaq is 95%. It is important to be aware of the relative strength of each index. We may look to use one or the other to scalp should these two highly correlated underlyings divert. This happens 15% of the time.

Watch this segment of "Scalping” (and the rest of this compelling series), with Tom Sosnoff and Tony Battista to better understand and to learn how to find the daily “sweet spot” of expected daily ranges, how to use this information to scalp futures and how this can improve your overall engagement in the markets.

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