5 Tips When Digging For New Stock And Option Trading Ideas

option trading ideas
Download The "Ultimate" Options Strategy Guide

Finding new trading ideas is hard work. Trust me I know, I’m constantly looking for the “low hanging fruit” when it comes to stock and options trading. I don’t want the trades that I have to over analyze and look at 100+ times over to confirm something. There are hundreds of securities to trade and we want the easy trades right?

High probability trading is what I try to teach my coaching students. Find the trading set ups that are “most likely” to make you money. Again I didn’t say 100% or anything close to that. Trading for a living is about winning on a consistent basis.

But I know how hard it can be hard to dig for new ideas, so here are 5 tips to help you get started. As always, it’s best to have some sort of a system in place to keep you accountable.

1. Choose High Volume Stocks

Quit the penny stock stuff people – it doesn’t work long term and is not consistent. Take that long list of stocks you think you look at each day and narrow it down to 20-40 stocks that have a lot of trading volume and liquidity. If there is light volume on the stock then there is bound to be light volume on the options.

I prefer the indexes and the major ETFs.

2. What Stands Out?

Below are two charts. Which one stands out more to you? The 2nd of course! The huge move in the stock screams opportunity. Depending on your analysis this could be a great trade for multiple reasons. The 1st chart is a stock that isn’t moving and likely has minimal options activity.

Again, look for the low hanging fruit. What jumps out of the screen and begs you to analyze it more? This can help really narrow your trading down.

Start The FREE Course on “Trade Adjustments“ Today: What happens when a trade goes bad? Do you roll out to the next month, move your strike prices, add/remove one side or do nothing at all? We'll give you concrete examples of how you can hedge different options strategies. Click here to view all 15 lessons ?

3. Momentum Indicators

Stochastics, MACD, Volume, Moving Averages and RSI all play a key role when deciding on a new trade. The basket of indicators you choose, whether lagging or leading, may depend on where you get your education. Try to keep it simple when first starting out, using too many indicators in the beginning is a ticket to the land of big losses.

Get very comfortable using one or two indicators first, and then add more indicators slowly.

4. Fundamental Analysis

Yes I said to do some “basic” fundamental analysis. Where is the company going? What news has come out that could affect it? Are earnings coming up soon? What about the industry or sector? There are so many questions to ask but the main idea here is just to get a general idea of what’s going on outside the charts. If you are trying to buy calls on a stock that just announced a major layoff or poor earnings then you are in for some big losses.

Sometimes a little homework now can save you thousands over time.

5. Set Up Price Alerts

One of the most underutilized services of most brokerage platforms are Price Alerts. On thinkorswim, you can set up price alerts that get emailed directly to you when the criteria are met. Why wait around for a stock to get down to $50 or whatever when you can have an alert sent out.

Make your trading systematic people! Spend 1 late night this week and set this up for the next couple weeks and it will save you hundreds of hours staring at your trading screen.

Guess How Many Indicators I Use?

I don’t use that many indicators when looking for new trading ideas, but the few that I use are very powerful. Add your comments below to guess how many I use. (Bonus points for guess WHICH indicators)

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.