New SPY Options Trend-Following Strategy

Welcome, traders! My SPY Options Trend-Following Strategy targets one high-probability trade daily using 2-minute candlestick color changes, EMAs, and the 15-minute range. I’ll test it with one contract and share results on the blog.

Strategy Overview

Trade 1 DTE SPY options, risking 30 cents per contract. Use the 15-minute range and EMAs for setups, entering on 2-minute candlestick color changes. Gap scenarios target 200 EMA mean reversion. Exit before 3:55 PM or when the trend fades.

Tools and Setup

• Market: SPY options (1 DTE)
• Chart: 2-minute candlestick
• Indicators: 8, 21, 48, 200 EMA
• Risk: 30-cent stop loss, one contract
• Session: 9:30 AM – 4:00 PM ET

Rules

• Daily Range: Mark 15-minute high/low (9:30–9:45 AM).
• Trend: Bullish (8 > 21 > 48 EMA, price near/above 200 EMA) or bearish (8 < 21 < 48 EMA, price near/below 200 EMA). Skip if EMAs are tangled.
• Gap Setups: If price opens well below/above 200 EMA (prior EMAs misaligned):
• Bullish (Gap Down): Calls on green candlestick near range low, targeting 200 EMA.
• Bearish (Gap Up): Puts on red candlestick near range high, targeting 200 EMA.
• Standard Setups (post-9:45 AM):
• Breakout: Calls on green candlestick breaking range high (8 > 21 EMA).
• Breakdown: Puts on red candlestick breaking range low (8 < 21 EMA).
• Pullback: Calls (green candlestick at 8/21 EMA above range) or puts (red candlestick at 8/21 EMA below range).
• Reversal: Calls (green candlestick after range low rejection) or puts (red candlestick after range high rejection).
• Entries: One contract, at-the-money or slightly out-of-the-money options, on candlestick close.
• Risk: 30-cent stop; $0.20 for gap volatility.
• Exits: Target 1:2 or 1:3 risk-reward ($0.60-$0.90). Exit on EMA crossover, range break against position, opposing candlestick color, or near 200 EMA (gap). Close by 3:55 PM.
• One Trade: One setup daily; skip if unclear by 2:00 PM.

Todays Trading Session

SPY's price opened up with a big gap down. I initially thought I would enter during the rising price action, but I already missed my entries, so I was waiting for areas to enter for possible rejects. I marked the areas where I would have entered for calls on the chart (gray circles).

The trade I entered was a bearish tail-bar entry from the 200 EMA and 48 EMA (green circle). The trade was a reject at this level. I set my stops, and the price continued to rip upward, resulting in my stop getting hit.

I missed THE trades today and gave a rejection a shot, but it is clear that the strong gap-down strongly favors a reversion back to the mean today.

I look forward to implementing this new system and testing with one contract and document on the blog. Stay tuned!