Can You Buy a Put and Sell It the Same Day? The Complete Guide to Day Trading Options

Have you ever wondered if you could make a quick profit by buying and selling put options within the same trading day? Well, your not alone! Many traders, both newbies and veterans, are curious about the ins and outs of day trading options. In this comprehensive guide, I’m gonna break down everything you need to know about buying puts and selling them the same day.

What Are Put Options Anyway?

Before diving into day trading puts, let’s get clear on what put options actually are.

A put option is a financial contract that gives the buyer the right (but not the obligation) to sell an underlying asset at a specified price (the strike price) within a specific time period. When you buy a put, you’re essentially betting that the price of the underlying asset will go down.

Put options are kinda like insurance policies against price declines. If you think a stock is gonna drop, buying a put can be a way to profit from that decline without actually shorting the stock.

Can You Actually Buy and Sell a Put Option in the Same Day?

The short answer Yes absolutely!

You can definitely buy a put option and sell it later the same day. This practice is known as day trading options, and many traders do it regularly to capture quick profits from intraday price movements.

But, there’s a few important things you should know before jumping in:

Pattern Day Trader Rules to Be Aware Of

If your trading in the U.S., you need to be aware of the Pattern Day Trader (PDT) rules:

• If you make 4 or more day trades (buying and selling the same security on the same day) within 5 business days, and those trades represent more than 6% of your total trading activity in that period, you’ll be flagged as a pattern day trader.
• As a PDT, you need to maintain a minimum account balance of $25,000 in your margin account.
• If your account falls below $25,000, you won’t be allowed to day trade until you bring the balance back up.

This is super important for new traders who might not have 25k sitting around! You don’t want to get your account restricted.

Options Settlement vs. Stock Settlement

Unlike stocks, options actually follow T+1 settlement, meaning the transaction settles one business day after the trade date. This is faster than the T+2 settlement for stocks.

The Pros of Day Trading Put Options

Why might you consider buying and selling puts on the same day?

1. Leverage: Options provide leverage, allowing you to control a larger position with less capital compared to buying or shorting the actual stock.

2. Defined Risk: When you buy puts, your risk is limited to the premium you paid for the option. This is different from shorting a stock, where your potential losses can be theoretically unlimited.

3. Profiting from Volatility: Even if the underlying stock doesn’t move much in price, changes in implied volatility can create profitable trading opportunities for put options.

4. Accessibility: You can start trading options with a relatively small account (though remember the PDT rules if you’re day trading frequently).

5. Tax advantages: In some jurisdictions, options trading might have different tax implications compared to stock trading. (But I’m not a tax advisor, so consult with one for your specific situation!)

The Risks and Challenges You Should Know

Day trading puts isn’t all sunshine and rainbows, though. Here’s some risks to be aware of:

1. Time Decay (Theta): Options lose value as they approach expiration. This time decay accelerates in the final weeks and days before expiration, which can work against you when day trading options.

2. Implied Volatility Changes: A decrease in implied volatility can cause your put option to lose value, even if the underlying stock moves in your expected direction.

3. Liquidity Issues: Some options have wide bid-ask spreads or low trading volume, making it difficult to enter and exit positions at favorable prices.

4. Complexity: Options trading is more complex than stock trading, with multiple variables affecting option prices (price of the underlying, time to expiration, volatility, interest rates).

5. Commission Costs: Frequent trading can rack up commission costs, eating into your profits. Always factor in these costs when planning your trades.

My Personal Strategy for Day Trading Put Options

When I day trade put options, I follow some key principles that have helped me stay profitable:

1. Choose the Right Underlying Assets

I focus on stocks and ETFs that:

• Have high liquidity in their options chains
• Show significant daily movement
• Have tight bid-ask spreads on their options

Popular choices include SPY, QQQ, AAPL, AMZN, and other major index ETFs or high-volume stocks.

2. Pick the Right Expiration Date

For day trading puts, I usually prefer:

• Options with expirations 1-4 weeks out
• Avoiding same-week expirations unless I’m very confident in my thesis
• Balancing premium cost with time decay considerations

3. Strike Price Selection Is Crucial

My approach to selecting strike prices:

• For bearish moves: slightly out-of-the-money puts
• For volatile markets: at-the-money puts
• For hedging: deep out-of-the-money puts

4. Entry and Exit Timing

This is probably the most important part of day trading puts successfully:

• Look for technical setups that indicate a potential downward move
• Consider market sentiment and sector trends
• Set profit targets and stop-losses before entering the trade
• Don’t be greedy – take profits when you have them!

5. Position Sizing and Risk Management

I never risk more than 1-2% of my account on a single trade. This helps me survive the inevitable losing trades without blowing up my account.

Sample Day Trading Put Strategy

Here’s a simple example of how you might day trade puts:

1. Morning Setup: Identify a stock showing weakness in pre-market or after a negative earnings report.

2. Technical Confirmation: Wait for technical confirmation of downward momentum (breaking support, bearish candlestick patterns, increasing volume).

3. Entry: Buy put options with 2-3 weeks until expiration, slightly out-of-the-money.

4. Management: Set a profit target of 15-20% and a stop-loss at 7-10% of your investment.

5. Exit: Sell your puts when either your profit target or stop-loss is hit, ideally within the same trading day.

Common Mistakes to Avoid When Day Trading Puts

Over the years, I’ve made plenty of mistakes (and seen others make them too). Here’s what to watch out for:

1. Overtrading: Don’t feel like you need to trade every day. Wait for high-probability setups.

2. Ignoring Implied Volatility: High IV means options are expensive, which can make profitable day trades harder to achieve.

3. Holding Overnight: If your plan is to day trade, stick to it. Holding options overnight exposes you to gap risk.

4. Averaging Down: Unlike stocks, options can expire worthless. Averaging down on losing options trades is often a path to bigger losses.

5. Trading Illiquid Options: Always check the open interest and volume before entering a trade. Illiquid options can be difficult to exit at a fair price.

Technical Analysis for Day Trading Put Options

When I’m looking for intraday opportunities to buy puts, these technical indicators have been helpful:

• Moving Averages: Stocks breaking below key moving averages can signal good put-buying opportunities
• RSI: Overbought readings might indicate potential reversals
• MACD: Bearish crossovers can signal downward momentum
• Volume: Increasing volume on downward moves confirms the bearish trend
• Support/Resistance Levels: Breaks below key support levels can trigger accelerated selling

Examples of Successful Put Day Trades

Let me share a couple of examples from my own trading:

Example 1: Quick Profit on Market Weakness

During a recent market selloff:

• Noticed SPY breaking below its 20-day moving average with increasing volume
• Purchased SPY puts with strike price 2% below current price, expiring in 2 weeks
• SPY continued dropping throughout the morning
• Sold the puts 3 hours later for a 25% gain

Example 2: Earnings Disappointment Trade

After a major tech company reported disappointing earnings:

• Stock gapped down 4% at the open but showed signs of stabilizing
• Waited for the initial volatility to settle, then bought puts when the stock started falling again
• Set a 20% profit target
• Exited the trade after 90 minutes with a 18% gain

Legal and Regulatory Considerations

Before you start day trading put options, be aware of these important regulations:

1. PDT Rule: Already mentioned above, but worth emphasizing again.

2. Margin Requirements: Different brokerages have different margin requirements for options trading.

3. Trading Levels: Most brokerages require approval for options trading, with different levels of access depending on your experience and account size.

4. Tax Implications: Options trades are typically subject to capital gains tax. Short-term gains (held less than a year) are taxed at your ordinary income rate.

Best Brokers for Day Trading Options

If your serious about day trading put options, choosing the right broker is essential. Here are some popular choices:

• TD Ameritrade/thinkorswim: Excellent analytical tools and research
• Interactive Brokers: Low commission rates and professional-grade execution
• tastyworks: Designed specifically for options traders
• Webull: Commission-free options trading with a decent mobile platform
• Robinhood: Simple interface for beginners, though lacks advanced features

Final Thoughts: Is Day Trading Puts Right for You?

Day trading put options can be profitable but isn’t suitable for everyone. Consider these factors:

• Do you have enough capital? (Remember the PDT rule)
• Do you understand options mechanics thoroughly?
• Can you devote time to monitor the market during trading hours?
• Do you have a solid risk management strategy?
• Can you handle the emotional aspects of trading?

If you answered “yes” to these questions, day trading puts might be a good fit for your trading style.

I’ve been day trading options for several years now, and while it’s definitely had its ups and downs, it’s been a rewarding journey. Just remember: start small, focus on learning, and prioritize risk management over making quick profits.

The market will always be there tomorrow, but your trading capital might not be if you’re not careful!

Have you tried day trading puts before? What strategies worked best for you? I’d love to hear your experiences in the comments below!

Happy trading!

The 3-5-7 rule is a risk management strategy for traders that sets percentage-based limits on risk and exposure.

No, it is not illegal to buy and sell a stock in the same day; this practice is known as day trading. However, it is subject to specific rules, most notably the Pattern Day Trader (PDT) rule, which is enforced by the Financial Industry Regulatory Authority (FINRA) and applies to margin accounts.

If you buy and sell a stock the same day, you’ve engaged in day trading, and the key outcomes are potential profits or losses, immediate tax implications, and the possibility of triggering specific trading rules depending on your account type and brokerage.