Most traders focus on strategy—but when you trade, it can be just as important. We say this because the timing of your trade can have a profound influence on factors like the options premiums and volatility. Simply put, certain times within the trading day are more favorable to trade in than others. Your prime opportunities are typically in the first couple or last couple of hours, however, the best timing does come down to what kind of trader you are.
Our guide will offer some key insights on what times are the best entering and exiting positions in the options market. We’ll talk about the ideal entry/exit times, why it matters, and how to apply it. Let’s dive in to show you how timing is half of the battle when trading options, the flipside of the coin from having a trading plan and strategy in place.
Why Timing Matters in Options Trading
Time has a major impact on the pricing of options contracts, both through “time decay” and “time value.” When options are getting close to their expiration date, the time value decreases which causes the value of the option to decline as well. This is the process of time decay. On the other hand, options contracts that have more time until their expiration date have a greater time value. It’s because there’s more time for the option contract to be profitable for the trader.
Time decay or theta decay can be influenced by the volatility of the underlying asset. While lower volatility can decrease the time value of an option, higher volatility can increase the time value.
Professional day traders and full-time, expert investors will often use market timing strategies and techniques to take advantage of market conditions and the shifts that are being predicted by other traders and investors. The pros use trading tools like economic forecasts or chart analysis to their advantage to determine the optimum times to buy and sell securities. This has resulted in there being certain times during the business day when traders are planning their entries or exits—our guide will be going over the best times throughout the trading day for entering and exiting positions.
Key Market Sessions and Their Characteristics
In this portion of our guide, we’ll be breaking down the trading day into time blocks and explaining the trading characteristics you can expect during these times. Not only will we address the pre-market time that expert traders could use to their advantage, but we’ll cover each segment of the trading day including opening, the midday lull, the power hour, and market close.
Pre-Market (4:00 AM – 9:30 AM EST)
This time is before the market officially opens at 9:30 AM EST. It’s generally not a recommended time of the day for most options trades. Unless you have a well-defined strategy in place to trade during this time, most traders should avoid the extended hours due to the liquidity-related risks that are present. In some cases, it can be beneficial for some investors who might be looking to take advantage of business developments or events.
The pre-market is defined by the following characteristics:
- Low Liquidity—Pre-market trading volumes are generally a fraction of the volumes you’ll see during the regular business day. Due to the low volume nature of the transaction that happens during this time, the liquidity is much lower for these positions. Traders must be careful to not get themselves trapped into a losing position during the pre-market portion of the day.
- High Spreads—Another notable characteristic of positions in the pre-market is that they have much wider bid-ask spreads as a result of the low volume, non-liquid trades occurring during this time of the morning. The difference in price between what a security can be bought and sold for is wider and these positions are harder to buy or sell quickly.
Who Trades during This Time?
Most of the people who take advantage of the pre-market segment of the trading day are investors with expertise in fundamental or technical analysis. They use this time to get a leg up on the competition, getting ahead of traders who are entering the market at 9:30 AM EST. Although there are risks associated with liquidity when entering a position during the pre-market portion of the day, traders can take advantage of overnight news developments to get into traders earlier than usual.
Market Open (9:30 AM – 10:30 AM EST)
Most of the major exchanges are open for business at 9:30 AM EST, such as the New York Stock Exchange (NYSE) and the NASDAQ. This marks the official start of the trading session for stocks and other securities on the exchanges, and this is the time that most traders begin conducting their business. It’s a time marked by high volume and notable volatility:
- High Volatility—Most traders will find rapid and potentially unpredictable price fluctuations when the market opens for business at 9:30 AM EST. Several factors contribute to this volatility, including large orders placed by the smart money investors during this time, changes in investors’ confidence, a lack of liquidity, and unexpected new releases that occur during the pre-market hours.
- Volume—The initial level of market activity is higher at this point in the day than at any other point, with the expectation of the “power hour,” which occurs much later on in the afternoon. High open volume right off the bat can suggest strong interest and liquidity, but it might not always be the case. Look at the smart money moves (large institutional orders) for an idea of a trend, both its strength and direction.
There’s a lot of promise during the market open, especially for experienced traders with strong setups. It’s during this time of the trading day that you can employ a short-term strategy like a scalp, where you conduct profitable trades in a matter of minutes, or take advantage of breakout trades, where you enter a position right before the price of the underlying asset breaks through to the next support or resistance level.
Midday Session (10:30 AM – 2:00 PM EST)
After 10:30 AM EST, there’s a noticeable dropoff in trading activity, and this begins the period of the trading day known as the “midday session.” It’s a time of the day that’s notable for its lower volume of trading as most of the major news events are out of the market by 12 noon. Although the conditions are much calmer than at other times, this midday lull is characterized by many of the stock prices losing their ground.
- Lower Volume—At this point in the day, it’s clear to many investors which way the day’s trends are heading and the magnitude of these trends. The initial volatility of the day has worn off as well due to many of the major news events and their initial impact having worked their way out of the market by lunch. This leads to a drop in trading volume as investors and traders wait around until the next push, which occurs at 2 PM EST.
- “Calmer” Market—Because there’s less trading activity occurring during this time, the midpoint of the trading day is notable for being the calm, downtime where swing traders and investors with a more conservative approach can thrive. Specifically, this calm time gives swing traders the time to conduct their technical analysis to look for the best entry and exit points based on short-term price movements.
Because midday is well-known for its calm environment, conservative traders will find great opportunities to employ low-risk trades where they can earn smaller, predictable returns. However, midday is a time for many traders to take a break to review their performance. It’s key to not chase unnecessary trades during this time.
Follow These Tips for Trading Midday for the Best Results
- Stick with your original trading plan, including adhering to all entry and exit points established ahead of time.
- When you have nothing else going on during this time, review your performance to find out what you’re doing right and where to adjust your strategy where needed.
- If you don’t see a trade midday that aligns with your current strategy, don’t chase after it.
- When there are signs of an unstable market during the midday lull, it’s best to avoid trading altogether to see where the rest of the day might be taking you before committing to new positions.
Power Hour and Market Close (2:00 PM – 4:00 PM EST)
When 2 PM EST hits, it’s game on. This is the other segment of the trading day that’s characterized by higher volume and volatility, much like the time around the market opening. The time between 3 and 4 PM is known as the “power hour” because traders are taking advantage of the sharp price swings that are happening around more news developments and large institutional activity.
- Volume Returns—The higher activity that you would have seen when the market opened at 10:30 PM EST returns around 2 PM EST and gets even more intense around 3:00 PM. This time is when traders can make quick profits and take advantage of large price swings. Everyone comes back around this time to capitalize off these conditions
- Volatility Might Spike—Along with volume, volatility increases greatly during the last two hours of the trading day. Some of this is due to news developments, but it’s also driven by the actions of institutional investors. Their large orders can influence market volatility and the direction of the trends.
- Useful for Exits and Reversals—Power hour can be beneficial for traders, both from the standpoint of exiting trades and taking advantage of market reversals. During the downtime of midday, traders can spot when a potential reversal is in the works and use the power hour to pivot their strategy. Power hour is great for exits too due to market liquidity which makes it easier for traders to leave positions quickly and secure a profit.
As the close of the market draws near, there are many traders who like to conduct their business close to the end of the business to avoid the hectic atmosphere of the power hour. For the most part, these are part-time traders who use EOD trading (end-of-day order flows) to buy or sell right before the market closes, based on a thorough analysis of the day’s trading activities. This helps them to establish the best market position.
Let’s explain this in a bit more detail with two possible scenarios:
- Traders might place a buy order to continue following a trend at the end of the day if there’s a stock that’s been trending upward all day long.
- A trader might place a buy order on a stock that has been trending downward most of the day but is showing signs of a potential reversal. This can help them to capitalize on the possibility of an upward movement.
Best Times to Enter Options Trades
The best times of the trading day to enter a position come down to what kind of trader you are and what your ultimate trading goals are for your online sessions. We’ve highlighted the optimal entry windows by strategy below for your convenience. You can tailor your entry times based on what kind of trading you’re conducting.
- Intraday Trading: The best time to enter a trade if you’re an intraday trader is during the first hour. This time of day is when there’s high volatility and the potential for quick profits. The first hour can be a great reflection of overnight sentiment or news. To a lesser extent, the final hour is a good time for intraday traders to enter new positions, but these would be scalping opportunities as all intraday traders have every one of their positions closed by the end of the business day.
- Swing Trading: The best timeframe for swing traders is the period of the midday lull that you see between 10:30 AM and 2:00 PM. Swing traders can catch medium-term price movements and capitalize on price consolidation that occurs during this time. Unlike the shorter intervals of the trading day, this midday portion doesn’t have the same hecticness and noise, and swing traders can get a clearer picture of the day’s trends without having to constantly monitor their positions.
To time trade entry correctly, traders and investors can use factors like volume, price action, and implied volatility to get a sense of when the time is right to make their move on entering a new position.
- Volume: Traders can use volume to figure out their entry points around clear trends or potential trend reversals. Price movements with high volume suggest a strong trend, while low-volume price movements suggest weak trends. Volume can also be used to spot reversals in addition to identifying trends. A reversal can be in the works if a strong trend suddenly sees a drop in volume, which could suggest that a new trend will soon emerge.
- Price Action: Timing trades around price action requires traders to identify key support and resistance levels, consider trend strength, and analyze candlestick patterns. Traders can enter a long position (buy) if the price approaches a support level during a downtrend, or they can enter a short position (sell) if the price approaches a resistance level during an uptrend. Candlestick patterns are useful for spotting trend continuations or reversals, allowing traders to plan their entries effectively.
- Implied Volatility: Using IV as a tool for determining their trade entries, investors can spot the best opportunities for entering new positions and use the correct strategy for each situation. For instance, high IV could suggest a good time for initiating credit spreads and iron condors to collect premiums. Low IV signals a good time for traders to enter positions using strategies like debit spreads and long calls or puts.
Best Times to Exit Options Trades
Traders should always consider the cost of exiting trades where they’re incurring the least amount possible in fees or commissions. High liquidity results in narrow bid-ask spreads, which ultimately minimizes the costs associated with exiting the position. These lower spreads lead to cost savings and are especially beneficial for frequent traders, though they can technically benefit any kind of trader regardless of their ability.
The times of the trading day that have the best liquidity are the market open (9 to 10:30 AM EST) and during “power hour” (2 to 4 PM EST) because that’s when most traders are actively participating which makes it easier for traders to enter or exit positions quickly without it affecting the price of the underlying.
As a result, the best times of the trading day for exiting positions are generally the first few hours and the last few hours. More liquidity leads to narrower spreads and presents cost-saving opportunities for traders looking to exit positions.
VWAP as an Exit Signal
VWAP stands for the Volume Weighted Average Price, a technical indicator that figures out a security’s average price throughout the day, taking price and volume into account when making the calculation. It can be especially useful for intraday traders looking for the ideal exit points of a trade. For instance, traders who are long in stock and are trading below the VWAP levels can use it as a target exit.
Support/Resistance Levels as Exit Signals
- Traders might want to close out long positions if the price approaches a resistance level and shows signs of weakness.
- Closing out short positions might be a good option if the price approaches a support level and shows signs of strength.
Common Mistakes Traders Make with Timing
Check out the most common mistakes that traders make when they’re timing out their trade entries and exits. If you can avoid these blunders or oversights, you can pick up new positions and get rid of old ones while locking in profits and minimizing possible losses. Work these best practices into your trading routine and you enjoy favorable outcomes more often than not.
- Entering a Trade Midday: The “midday chop” refers to a period when the market is experiencing sideways or rangebound price action. It’s notable for being a time of no clear trend and is characterized by small, but frequent price swings. Prices for assets move erratically within a narrow range, which could cause some traders to enter trades at unfavorable prices or before a clear direction for the latter half of the day has been established.
- FOMO Entries During the Open: The fear of missing out can drive many traders to overextend themselves by taking on too many positions during the market opening or by entering trades that have no established direction yet, which could lead to losses. Some traders can rush in with no risk management plan in mind, leading to losses. Entering a bad trade with little information can lead traders to double down on their decisions. Unsurprisingly, this can lead to more losses than anticipated.
- Holding Too Long into Expiration: Due to time decay and the potential for the underlying asset to move against your positions, holding on positions for too long can lead to considerable losses. The option expires as worthless, and the trader stands to lose the premium they paid to enter the trade.
- Not Accounting for Market News/Events: Ignoring what’s going on in the news or major geopolitical events can result in disaster for your trading plans a lot of the time. These events are a big driver of market volatility, which creates conditions for good entry and exit points for trades. Plus, some volatility can cause your investments to lose or grow in value. If you aren’t paying attention, you cannot put a plan together to deal with these losses or gains in the right manner.
Bonus Tips for Better Trade Timing
Are you interested in taking your trading to the next level with precise timing? We’ve provided some bonus tips and tools for getting the timing of your entries and exits right each time. You can experience a ton of benefits from using economic calendars, alerts, and tools to monitor open interest or volume levels, including keeping your trading sessions organized and rooted in logic and reasoning.
Use Economic Calendars
To avoid trading into news, you should be using economic calendars to plan around significant market events like new product releases, economic reports, or earnings announcements. For your convenience, we’ve included a few places where you can find reliable, robust economic calendars to keep on top of all the relevant happenings in the news.
Economic Calendars
– Investing.com FXStreet
– TradingView Forex Factory
– CME Group Yahoo Finance
– MarketWatch New York Fed
– US Census Bureau
Watch Volume and Open Interest
Trading volume can be found on most online brokerage apps, exchanges, and financial websites. Monitoring volume can help traders gauge how strong price movements are as well as their overall sustainability. It can be used for assessing market sentiment and spotting potential trend reversals. To keep a good eye out for volume in trading you can monitor increasing volume as a sign of trend confirmation and decreasing volume as a sign of a possible trend reversal.
When it comes to open interest levels, traders can find data using the same platforms they used to find volume data: exchanges, trading apps, and other financial websites. Traders can monitor open interest alongside price movements to find areas of support or resistance and trend continuations or reversals.
It’s best to use volume and open interest in tandem with one another (along with a few other technical indicators) to get the clearest picture of what’s going on in the market.
Set Alerts for Setups
A good method to keep you out of emotional trading patterns is to set up trading alerts that keep you in the loop. Alerts are automated notifications that traders can get on their devices when criteria specific to their trade or the overall market are met. It includes factors like economic events, technical indicator changes, or price movements.
Instead of trading based on emotions like FOMO, greed, overconfidence, or apprehension, set up alerts to keep you informed and keep you grounded in your current strategy. Use the information from the alerts to make logical decisions that are rooted in hard data and research on the current market context.
Tools to Help You Time Trades More Effectively
If you’re interested in timing your trades more effectively, check out these dynamic tools for getting the job done. Use screeners or scanners to find options that align with your trading strategy, time-of-day heatmaps to find out where the highest concentration of orders are placed throughout the trading day, and intraday charts for added insights.
Options Scanners and Screeners
To track volume and volatility to time your trades correctly, we’d encourage you to check out the following options scanners and screeners. You can find many of them on trading apps, exchanges, or on financial websites. Use these tools to scan the market and find results that align with your specific strategy.
Best Option Scanners
- Stock Rover
- TradingView
- StocksToTrade
- Finviz
- Trade Ideas
- Blackboxstocks
- Benzinga
- StockFetcher
- Market Chameleon
- The Trading Analyst
- TC2000
- Yahoo! Finance
- TrendSpider
Best Option Screeners
- Stocker Rover
- Zacks Investment Research Inc.
- StocksToTrade
- Stocker Rover
- TradingView
- Yahoo! Finance
- Seeking Alpha
- Benzinga Pro
- Block Trade Screener
- TC2000
- Zacks Stock Screener
- ChartMill
- Fidelity Investments
- StockFetcher
- TrendSpider
- TD Ameritrade
- Trade Ideas
Time-of-Day Heatmaps
Also known as “temporal heatmaps,” time-of-day heatmaps display time series data that can be used to pinpoint patterns and trends in that data over time. In the context of options trading, these heatmaps highlight the times of day with the highest concentration of orders, and they’re usually from institutional investors. Traders can use these insights to get ideas of the current liquidity levels of the market, what kind of sentiment the experienced traders are expressing, and to identify periods of the day where volatility is high or low. They can use this information to plan their entries and exits.
Brokers with Advanced Intraday Charts
The following online broker apps offer intraday charting capabilities, so you should consider using one of these, especially if you want to keep your trading session and all your trading tools in one place.
TradeStation: This platform comes with helpful intraday charts, plus other useful tools like customized alerts, simulated trading, and advanced charting and analysis tools.
Tastytrade: There are a ton of great educational tools to be found at Tastytrade that cater well to traders who employ a wide range of strategies. One of the best tools, however, is the intraday charts, which help find the best entry and exit point for trades.
Interactive Brokers (IBKR): Not only does this platform cater well to advanced traders, but Interactive Brokers also has an appeal with intermediate investors, offering sophisticated, yet easy-to-use charting and analysis tool,s including advanced intraday charts.
A few other notable platforms that have intraday charts include Charles Schwab, Robinhood, Webull, FOREX.com, Oanda, and Fidelity.
Timing Is Everything—Now You Know When to Strike
Mastering when to trade can significantly improve your results. Not only is it important for traders to know the dynamics of the market day between 9:00 AM and 4:00 PM EST, but it’s key for them to know how factors like volatility, liquidity, and market sentiment have an impact on options pricing, so they can plan their entries and exits accordingly.
Observe market behavior in different sessions to find out which circumstances deliver the ideal entry and exit levels for your options positions. To enhance your experience, use tools like economic calendars, volume and open interest levels, alerts, time-of-day heatmaps, and option scanners/screeners to find out which way the day’s trends are moving and how you can enter or exit traders to maximize your profit potential.
Download a free time-of-day trading cheat sheet!
