Pick The Right Options To Trade In Six Steps

The prices of the March puts and calls on GE are shown in Tables 1 and 3 below. In today's podcast episode, I'll help simplify the process for you because I can almost guarantee that you're overthinking it. So, how do you filter down to a handful of just the best stocks with the best trading potential? Each option contract generally represents shares. Every option strategy has a well-defined risk and reward profile, so make sure you understand it thoroughly. Getting a Handle on the Options Premium.

Even after discussing and outlining the general process for how to pick the right stock options strategy in previous podcast and videos, I continue to get members who are confused how it should work and the steps one might take.

Strike Price Considerations

Would appreciate a little guidance on the terminology. I'm humbled that you took the time out of your day to listen to our show, and I never take that for granted. If you have any tips, suggestions or comments about this episode or topics you'd like to hear me cover, just add your thoughts below in the comment section.

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Kirk founded Option Alpha in early and currently serves as the Head Trader. So, how do you filter down to a handful of just the best stocks with the best trading potential? In today's podcast episode, I'll help simplify the process for you because I can almost guarantee that you're overthinking it. Finding the best stocks for options trading is actually very easy when you know what to look for and have a solid understanding of what your portfolio "needs" to maintain it's balance.

Master these two points, and a little technical analysis if necessary, and you'll find that the possibilities are wide open. If you portfolio is bearish and you need more bullish positions, then you can easily start scanning for bullish setups. Look at SLV, which has a high level implied volatility and since you need a bullish position, so you can do a put credit spread in SLV.

Therefore, understanding your portfolio balance makes it a lot easier focus in and hone in on exactly what trades you need. Say there are no high implied volatility trades. Identifying events that may impact the underlying asset can help you decide on the appropriate expiration for your option trade. Based on the analysis conducted in the previous steps, you now know your investment objective, desired risk-reward payoff, level of implied and historical volatility, and key events that may affect the underlying stock.

This makes it much easier to identify a specific option strategy. You may therefore opt for a covered call strategy, which involves writing calls on some or all of the stocks in your portfolio. For example, you may want to buy a call with the longest possible expiration but at the lowest possible cost, in which case an OTM call may be suitable.

Conversely, if you desire a call with a high delta, you may prefer an ITM option. He doesn't want to sell the stock, but does want to protect himself against a possible decline. Bateman does not mind a little risk as long as it is quantifiable, but is loath to take on unlimited risk. Earnings come out in just over two months, which means Bateman will need to get option that extends about three months out. This cost excludes commissions.

If the stock drops, Bateman is hedged, as the gain on the option will offset the loss in the stock. Buy speculative calls on Bank of America. None, the company just had earnings so it will be a few months before the next earnings announcement. Robin is not concerned with earnings right now.

Strike Price Selection Examples

The strike price considerations here are a little different, since investors have to choose between maximizing their premium income while minimizing the risk of the stock being “called” away. We’ll show you how to find the best stocks for options trading with 4 clicks. Finding the best stocks for options trading is actually very easy when you know what to look for and have a solid understanding of what your portfolio "needs" to maintain it's balance. use analysis to pick stocks that fit that directional assumption, to keep. How to Pick the Right Option And there is a time and place for that — usually as part of a strategy that includes a hedge like owning a stock or a long option to help limit your losses if.