Live paper test since 14 Sep 2026

SPX Gap Down Fade Strategy

This strategy only trades mornings when the market opens well below yesterday's close. On those days it bets that part of the overnight drop gets bought back, using a same-day SPX call bought right after the 09:30 ET open. Most days there's no gap big enough, or the gap is up, and it does nothing.

Today

No trade today. Market closed.

Status as of 26 Oct 2026. Turn on JavaScript for live updates.

How it works

While the US market is shut, news, earnings and overseas trading keep moving prices. So the market often opens somewhere quite different from where it closed: a gap. A popular belief is that gaps "always fill". They don't, but in my longer history tests, gaps down were partly bought back often enough to be worth testing.

1. Measure the gap on SPY, not SPX. SPY is the ETF that tracks the S&P 500, and its opening price is a real trade. SPX's own opening print is partly yesterday's price (it's printed before all of its stocks have traded), so it understates the gap on most days. In testing, measuring the gap on SPX instead of SPY turned a working strategy into a losing one.
2. Only big gaps down. If SPY opens below yesterday's close by more than a set amount, the day qualifies. Small gaps are skipped: the edge between "fills" and "keeps going" is too thin there. Gaps up are skipped too (more on that below).
3. Buy the call, right after the open. A few seconds after 09:30, once SPX has caught up with the real market, I buy an at-the-money same-day SPX call at the real asking price. There's no waiting for a better level: in testing, waiting for the market to drop further first skipped most of the best days.
4. Take a fixed profit. The target is set on the option's own price, not on the index. On a good day it's reached within minutes; on a slow day it can take hours.
5. No stop. The trade is either closed at the target or sold before the close. In testing, the losing days weren't sudden drops but slow ones, where a stop mostly cut trades that later recovered. That makes every trade's worst case the full price of the option.

Why only gaps down. This test started on 14 Sep 2026 trading gaps in both directions. Every loss came from a gap up held to the close, while every gap down reached its target. From 14 October 2026 this version trades gaps down only. The earlier gap-down trades are included in the record below, because they followed exactly the same rules.

How often it trades

Since 14 Sep 2026 there have been 31 sessions. It traded on 9 of them. On 6 the market gapped up, and on 16 there was no gap big enough. Most of the work is deciding not to trade.

won lost no big gap gapped up

What one trade risks

Everything here is one contract. The most a single trade can lose is what was paid for it, which so far has been at most $2,280. A typical trade was open for about 59 minutes.

Every trade

Times are New York time. One contract per trade, no commissions.

What makes me doubt it

• 9 trades is nowhere near enough. It will take months of gap days to say anything.
• The gaps-down-only rule was chosen after seeing results. It matches what I found over more than ten years of SPY history, where gaps down were bought back more reliably than gaps up. But I made the cut after the gaps up started losing, which is exactly how you fool yourself. The rules are now fixed, and it gets judged only on trades from here.
• All of these gaps came in a rising market. Buying the dip after a gap down works best when the trend is up. In a falling market, gaps down are more likely to keep going.
• The long-run edge has been shrinking. In my history tests, gap fading was clearly profitable a decade ago and much weaker in recent years.
• Paper fills are kinder than real ones. I buy at the ask and sell at the bid, but a real order in the first seconds after the open might not get those prices.

What would make me trade it with real money

• At least 20 trades, still above zero, including some losing ones. A record with no losers yet can't tell me how big the losses will be.
• Losses that the wins can pay for. With no stop, one loss can cost two or three wins. The record has to show it survives that.
• Real fills that match the paper ones, over a few weeks of one-contract real orders.

When I'll give up on it

If it's below zero after 20 trades, it goes to the graveyard with the others.

Changes along the way

• 14 Sep 2026: live test started, fading gaps in both directions.
• 14 Oct 2026: narrowed to gaps down only. Rules fixed from here.

Questions

Paper trades, filled at real market bid/ask quotes, one contract each, no commissions. The trade table is rebuilt every night; the Today box updates live. This site records my own testing and trading. It isn't financial advice. 0DTE options can go to zero within minutes.

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