Today, I was live on a workshop with Lance talking about one of my strategies when I mentioned that trading during the day is really tough.
The simplest reason is because the market actually doesn’t move very much during the day.
In fact, over the last 30 years, if you just look at the net movement from the 9:30am opening bell to the 4pm closing bell, the market barely budges. It’s kind of insane!
That bottom area is showing you how over that entire period, the market actually goes nowhere during what we all consider the market hours.
Now, I could spend all day going down the rabbit hole of how wild that is.
I mean, think about it: The actual time the market is considered “open” it has done nothing cumulatively in 3 decades… Yet somehow the market is up massively in that time frame.
I’ve been focused on this chart for months now and it still boggles my mind every time I see it.
But I digress…
I said “no one makes money during the day” offhandedly talking about this chart.
I didn’t mean it literally.
I think Lance was ready to jump in with an “Excuse me?!” referring to himself before I corrected myself a bit 🙂
Obviously there are big moves during the day all the time. Literally all the time.
But over the course of time, there’s no net advantage there. And that’s a tough way to trade, folks!
As I always say, the biggest advantage we have as investors is that the market goes up more than it goes down. But if you’re day trading, you lose that advantage. I personally don’t think I could win without it.
But there’s another piece of the puzzle that I think we should be really clear about:
Just because the market moves a lot more overnight, doesn’t mean it moves a lot overnight.
Let me repeat that cause it’s very important:
Just because the market moves a lot more overnight – compared to the nothing burger of the day – doesn’t mean it moves a lot overnight.
In fact, the average move is a fraction of a percentage point. But stacked up over 30 years it really adds up.
Here’s the point:
Even if you have the “lightbulb” moment that you can’t be stuck between 9:30 and 4, and you decide to go after the moves that are happening overnight, you still can’t expect to get outsized moves most of the time.
As you’ve probably heard me say a thousand times at this point, that is why regular options fail so many people.
They need big, big moves to make any return. And actually getting big moves is a lot harder than most people realize.
So most investors buy an option, watch the stock go up a few percent and still lose money. Talk about a tough way to get ahead when you’re right and still lose money.
And that’s why I’ve really honed in on trying to generate profits on small moves.
That’s what Overnight Options is all about.
When I talk about the overnight moves, I am not talking about “home run” trades. Quite the opposite!
What I am doing is tapping into the incremental advantage over time.
So just to clarify:
- Yes, of course, people can make money during the day – it’s just hard
- I am targeting overnight moves but not big moves, just the incremental advantage
Hope that helps!
Nate Tucci
