What are some of the most liquid stocks that have tradable options?
Each month we scrub and screen for liquid stocks that also have extremely liquid and tradable options. We post this watch list inside of our membership area for those who purchase access to it with free lifetime updates. In addition you’ll also be able to see implied volatility rankings, expected move calculations and suggest option strategies for each particular security. You can access the Option Alpha watch list here.
How often is the Option Alpha watch list updated or refreshed?
The data in the watch list for market information like stock price, market change, and percentage change on the day is updated throughout the trading day with anywhere between a 5-min to 10-min lag in real-time pricing. The implied volatility and expected move calculations are updated at the end of the day and use close of the day option market pricing as intra-day option market pricing is not available directly from the exchanges.
What is considered a tight market with respect to bid/ask spread?
The tightest bid-ask spreads are generally 1 penny wide markets (0.01 wide). However anything 2 to 4 pennies wide is considered a fairly liquid and a tight market for options trading purposes. Keep in mind that higher priced stocks will naturally have a wider spread because of the underlying price though we still might consider them liquid. To view the securities that pass our liquidity test and are included in our own personal watch list please click here.
How do you determine if an option contract has enough liquidity?
To determine if a specific option contract and strike price has enough liquidity you’ll want to look at both at the daily volume and the open interest. A good rule of thumb is that you should see daily volume towards the end of the trading day around 200+ contracts and open interest of a couple thousand contracts for ATM strikes. Some options will have much more open interest and volume which obviously leads to better bid/ask spreads and quicker execution on entry and exit trades.
How do I get access to the pre-screened watch list and earnings calendar for Option Alpha?
You can gain access to the Option Alpha watch list and earnings calendar by navigating to our watch list page inside of the trading hub. This is a dynamic page that is updated live throughout the day with information like current stock price, market change, implied volatility rank, expected moves, and suggested options strategies. This software is proprietary and was developed in-house for our members that you can't find anywhere else.
Should I use the watch list filters to quickly find great trading opportunities?
Yes. In fact we use the watch list as part of our own in-house scanning purposes since it was developed as a tool for us to quickly filter of all of our trades in our watch list easily to find new opportunities. One of our favorite ways to find new trading opportunities is to sort by highest implied volatility and filter for ETF trades only. This gives us a great list to start inspecting deeper to find new setups.
How big should my watch list be if I’m just starting out?
Your watch list should be fairly small regardless of if you are starting out or a professional trader. The key isn’t the size of the watch list, it’s the amount of highly liquid stocks and options on it that you can trade. Since we publish a pre-screened and pre-scrubbed watch list for you here at Option Alpha there’s little need to create one on your own.
Why do you use implied volatility rank vs implied volatility of the actual options?
Using implied volatility rank is a more standardized approach to finding the highest implied volatility securities. Because implied volatility of the actual options might vary based on the stock itself, we don’t know if one reading on a stock is necessarily high or low based on that stock's history. For example, if Apple has implied volatility of the actual options around 30%, we don't have a way of knowing if 30% for Apple is relatively high or low historically. A reading of 30% may be relatively high for a stock like Home Depot, but might be relatively low for a stock like Apple. For this reason, we developed our implied volatility rank ability inside of our watch list to properly categorize and standardize which stocks actually have high implied volatility. The implied volatility rank calculates the low and high over the last year and then ranks the current implied volatility reading for the stock to give you an indicator of whether it's relatively high or low.
What are you minimum thresholds for choosing liquid options both in daily volume and open interest?
In an ideal world I’d like to see at least 1 million shares traded actively each day for the underlying stock and at least 1,000 contracts of active volume on option strikes close to ATM. Further out strikes will have less volume naturally so I judge volume mainly based off the ATM strikes. Additionally, we feel that it’s important that whatever strike prices you are trading also have decent open interest of at least 500 contracts.