Imagine this: You’ve just entered an options trade. Within seconds, your trade is already profitable. The profit is marginal — a measly 5% of what you risked. But you don’t care, that’s perfect — because you’re scalping options. Scalping, or scalp trading means you’re looking to get in, score a quick buck, and take your profit at the first opportunity. Rinse, repeat, over and over again, as many times as possible throughout the day.
Like a true guerrilla warrior, a scalp trader likes it best when they slip in and slip out, undetected by the rest of the market and unhesitant with their actions. As such, scalp traders typically rely on timely reactions, technical analysis, and tight trading plans — which include an exit plan for the good times and for the bad times.
Real-Life Scalping Options: Trading Example Using Tesla Puts
The 8-second video above depicts a quick, real-life scalp example using a single Tesla (TSLA) put weekly contract, bought for $4.90 and sold for $5.12 in two and a half minutes for a quick +$20.70 profit ($22-($0.65*2)), for roughly +4.5%. This trade was made using ThinkOrSwim’s web platform, by this author, for the purpose of this article.
On its own, that 4.5% isn’t going to move the needle for most people. But for traders with a consistent win rate, those small wins can add up fast.
Perhaps most importantly, notice that shares of the underlying stock (Tesla, which has been falling for several weeks now) only needed to move a few cents in the direction of the trade in order for the trade to reach its profit target. This is part of the allure of scalping.
Common Scalp Trading Timeframes
Everybody’s different, and there is no rigid timeline for exactly how short a scalp trade must be. However, many consider a successful scalp to be a trade that hits its intended profit in less than 10 minutes — and way less if possible.
Scalp traders usually look for short-time technical signals like intraday breakouts, an overbought or oversold RSI, and bullish or bearish chart patterns.
Because scalp traders are looking to trade in as short a timeframe as possible, the timeframe of their indicators must reflect that — for instance, scalpers are likely to lean heavily on 1-minute and 5-minute candlestick charts, while a swing trader (someone looking to remain in a trade for days to weeks) might be watching candles like the 1-hour, or even the 1-day.
For a swing trader, 1-minute and 5-minute candles are simply noise. For a scalp trader, 1-day candles are simply irrelevant.
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Benefits of Scalp Trading
- Small trading amounts for small trading accounts
- Hone your win-ratio with more opportunities to be right
- For those who love the act of trading, scalping can be fun and rewarding
Scalp trading has a variety of benefits. For traders who are comfortable with spending a lot of time in front of the charts, and who enjoy the act of opening and closing trades, scalping can be as exciting as it is lucrative. The quick “win or lose” can feel thrilling and competitive — however, you must always keep in mind that this is not a game.
In high-frequency trading, it takes an iron-will and a complete ability to detach from emotion in order to achieve consistency. And consistency is exactly what is required of a successful scalp trader.
Scalping can also be particularly helpful for aggressive traders with small to medium-sized accounts. That’s because scalp trading lends itself to risking small amounts of capital relative to the amount one might risk when making a swing trade or even a day trade. This is part of why scalping and options trading go together like peanut butter and jelly.
The short-term nature of scalp trades and the propensity to risk small amounts of capital pair well with short-duration option contracts. While theta decay is always a risk when trading short-term options, scalpers largely mitigate this risk by entering and exiting trades before much of any time has passed at all.
Moreover, tools like 0DTE options with lightning-fast gamma acceleration can turn small moves in the underlying stock into palpable profit — if you know how to handle the trade. On that note, here are a few things to beware of if you plan to sightsee in the world of scalping.
Negatives of Scalp Trading
- Commissions can burn a hole in your wallet
- Hours of screen time can burn a hole in your retinas
- Requires at least some technical analysis know-how
First and foremost, just because scalping can be great for small accounts, doesn’t mean it’s great for every small amount. It’s true that scalp traders typically risk small amounts of capital when making their trades, but scalp traders also pay a large amount in commissions relative to lower frequency traders.
For instance, imagine that you’re scalping, and on average, you’re buying and selling 10-lot option orders.
VOCAB CHECK — LOT: A lot refers to the quantity of units you are trading, whether that’s shares of stock or options contracts. A “round lot” is 100, and an “odd lot” is exactly what it sounds like — an odd-sized order typically less than 100 contracts or shares.
Also, imagine that the brokerage you’re using charges $0.65 per contract for each open or closed order. So, in the 10 minutes it may have taken you to open and close that 10-lot option order, you’ve spent $13.00. Realistically, if you’re a true scalp trader, you’ll be doing this many times throughout the day. However, don’t start panicking yet.
That $13 isn’t the end of the world — it just means you need to account for the cost of commissions in your trading plan. If your profit target was $100, maybe now it’s $113. Likewise, if the potential for profit is so minuscule that it won’t confidently make up the commission costs, it is of course best to avoid it entirely.
While there are some commission-free brokerages, the order execution is often subpar. Robinhood and WeBull are examples of this. As a rule, remember that no one is really trying to let you trade for free. Whether it’s through commissions or poor order execution, brokerages are here to make money — and you are the customer.
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Lastly, scalp traders must be dedicated to their craft. All trading is serious business, but it takes a lot more commitment to sit in front of the screen searching for many opportunities a day than it does to buy LEAPS or to hold onto a few swing trades. That’s because in scalping, every second counts. It isn’t just about the literal time it takes to open and close dozens of trades.
Scalp traders need to be comfortable with the technicals, and that will also take time. It isn’t required that you become a licensed CMT or understand every single indicator, but knowledge of some common chart patterns and indicators will go a long way. And conversely, without an understanding of at least the basics, you’re running blind. Risking less per trade may sound less risky, but for those who haven’t perfected their scalp trading strategy, repetitive losses can stack up just as quickly as the wins.
In short, if you’re not willing to put in the time, you’re probably going to get nickel-and-dimed.
The Bottom Line: Option Scalping Can Be Great
You already know this, but we’ll say it again for good measure: In the stock market, there’s no free lunch. There’s no secret knowledge of one particular strategy that will make it easy for you to succeed. Every strategy requires discipline, practice, dedication, and a little bit of luck won’t hurt either.
Scalping is no exception. While it can be great for small accounts, a scalp trading strategy is one of the more difficult in the trading world.
They require fast reaction times. The ability to make a plan and stick to it. Knowledge of options and knowledge of technical analysis — and at that, they generally require the use of the shortest duration (and highest risk) contracts. Still, like any trading strategy, if you’re motivated and determined to succeed — then you will.
Want to skip the line? There’s only one surefire way to scalp like a professional without performing hours of research: By following along with the trades of the professional option traders who do! That’s what you can do inside of Market Rebellion’s Rebel Pit. The Rebel Pit is for short-term, high frequency traders to take advantage of short-duration options. The Rebel Pit is hands-on, crafts trading plans for you, and delivers them live during market hours. Try Rebel Pit today and see if it doesn’t change your trading experience.