Why 1 DTE SPY Trading?
For traders with smaller accounts who are working within the confines of the Pattern Day Trader (PDT) rule, 1-Day to Expiration (1DTE) SPY options present a unique advantage. By trading options with just one day until expiration, you can avoid the PDT rule, which limits day trades for accounts under $25,000.
The 1DTE strategy typically involves selling credit spreads (such as vertical spreads or iron condors) on SPY, the S&P 500 ETF, on a daily basis. These spreads allow traders to take advantage of small, predictable price movements in SPY with limited capital requirements, especially if you are working with a smaller trading account.
The beauty of 1DTE trading is its short timeframe, allowing you to quickly capitalize on market conditions without being stuck in positions overnight. However, there are certain market days—usually tied to major events or expiration dates—that require special strategies to handle the increased volatility and risk.
In this post, we’ll break down the key trading dates for 2024-2025, listing days to avoid or trade with caution and alternative strategies for each, primarily focusing on 1DTE SPY trades to stay within the PDT rule.
Key Dates to Avoid or Adjust Strategy
Here are the most important warning days to be aware of when trading SPY, along with detailed strategies for each:
December 24, 2024 (Tuesday) – Christmas Eve (Shortened Trading Day)
Market Behavior:
• Reduced liquidity as traders leave early for the holiday.
• Low volume can lead to unpredictable price swings.
Strategy:
• Avoid New Trades: It’s best to avoid entering new positions, as liquidity is too low.
• Close Positions Early: Exit any open trades well before the market close.
• Scalp with Small Size: If you trade, keep it conservative. Use 1DTE credit spreads with very tight strikes to limit exposure to volatility.
Alternative Strategy:
• 1DTE SPY Iron Condor: Sell a wide Iron Condor to take advantage of the limited price range.
Example for SPY at $591:
• Sell 590 Call / Buy 595 Call
• Sell 585 Put / Buy 580 Put
• Tight 1DTE Call/Put Credit Spread: A very small range (e.g., 590/591 call spread) can provide a safer play if you are looking for a quick trade.
2. December 31, 2024 (Tuesday) – Year-End Rebalancing
Market Behavior:
• High volume and possible volatility as funds rebalance portfolios for the year-end.
• Exaggerated movements in the last hour of trading.
Strategy:
• Iron Condors or Vertical Spreads: Open positions the day before, setting strikes wide enough to accommodate the expected volatility.
• Avoid Late-Day Trades: Close positions early in the session to avoid unpredictable price swings near market close.
Alternative Strategy:
• 1DTE SPY Iron Condor: Sell an Iron Condor with wide strikes to capture premium without risking excessive volatility.
Example for SPY at $591:
• Sell 600 Call / Buy 605 Call
• Sell 580 Put / Buy 575 Put
• 1DTE Vertical Spread: Sell a put or call spread targeting a stable price range for the day.
Example: Sell 590/591 Call spread for a quick move if SPY is trading near 591.
3. January 17, 2025 (Friday) – Monthly Options Expiration (OPEX)
Market Behavior:
• Increased volatility and volume as SPY’s monthly options expire.
• Possible trend reversals and price fluctuations near the close.
Strategy:
• Directional Play: If SPY shows momentum early in the day, consider a bull or bear call spread to take advantage of the trend.
• Avoid Holding Overnight: If you trade 1DTE SPY options, close your positions well before the market close.
Alternative Strategy:
• 1DTE Credit Spreads: Selling a bull put spread if SPY is bullish early or a bear call spread if the market shows signs of weakness.
Example:
• For SPY at $591:
• Sell 590 Put / Buy 589 Put (if bullish).
• Sell 595 Call / Buy 596 Call (if bearish).
• Straddle or Strangle: Buy both a call and put at slightly out-of-the-money strikes to capture volatility if SPY shows strong movement.
4. March 21, 2025 (Friday) – Quadruple Witching
Market Behavior:
• Quadruple Witching refers to the simultaneous expiration of stock options, index options, stock futures, and index futures, leading to massive volatility.
• High volume, quick price movements, and trend reversals.
Strategy:
• Wide Iron Condors or Credit Spreads: Sell wide Iron Condors to accommodate extreme volatility.
• Limit Risk: If you enter trades, do so with smaller position sizes and tight risk management.
Alternative Strategy:
• 1DTE SPY Iron Condor: Example for SPY at $591:
• Sell 605 Call / Buy 610 Call
• Sell 570 Put / Buy 565 Put
• Tight 1DTE Put or Call Credit Spreads: For smaller accounts, use a tight 1DTE credit spread like 590/591 or 590/589 for quick, small profits.
5. March 25, 2025 (Tuesday) – Possible Fed Interest Rate Decision
Market Behavior:
• Major volatility as traders react to the Fed’s decision on interest rates.
• Intraday swings as the market adjusts to the announcement.
Strategy:
• Directional Play Post-Fed: Wait for the Fed’s announcement and trade based on the reaction. If SPY moves strongly in one direction, consider a call or put debit spread.
• Straddles or Strangles: Consider buying a call and put at the same strike to profit from large price movements in either direction.
Alternative Strategy:
• 1DTE SPY Straddle: Buy a call and put at a strike just outside SPY’s current price to take advantage of a large move in either direction.
• 1DTE Vertical Spreads: If a clear trend develops, trade a bull call or bear put spread. Example: Buy 595/600 Call Spread (if bullish) or 590/585 Put Spread (if bearish).
6. June 20, 2025 (Friday) – Quadruple Witching
Market Behavior:
• Expect sharp price movements, quick reversals, and high volume.
Strategy:
• Scalping: Small 1DTE SPY positions can be profitable if you trade early in the day.
• Straddle or Strangle: Use these to profit from expected large moves.
Alternative Strategy:
• 1DTE SPY Iron Condor: Example for SPY at $591:
• Sell 605 Call / Buy 610 Call
• Sell 570 Put / Buy 565 Put
• 1DTE Credit Spreads: Sell tight credit spreads based on early morning trends.
Conclusion
Trading SPY with a 1DTE strategy is a great way to navigate smaller accounts and avoid the PDT rule. However, understanding the key trading dates and their potential for increased volatility is essential. On warning days like OPEX, Fed rate decisions, and Quadruple Witching, it’s critical to adjust your strategy and position size. For most of these days, Iron Condors, credit spreads, and straddles/strangles will be your best bet, depending on the price action.
Check out freethetrade.com for more tips, tricks, and strategies!
