One of the most challenging aspects of options trading for most people is in finding the best stocks and setups to trade. And I completely understand since there are thousands of stocks from which to choose. 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.
Key Points from Today's Show:
- It is incredibly easy to find anything to trade, because you can trade options on anything. However, use a set scanning technique to avoid "analysis paralysis" from giving yourself too many choices.
- You can make a trade on any stock at any point, as long as you know two things: where is implied volatility, and what is your directional assumption?
- There are two strategic actions you need to find the best stocks for options trading:
- Scan by implied volatility. Filter for the highest volatility with any securities showing a reading over the 50th rank.
- Assess your portfolio needs - use analysis to pick stocks that fit that directional assumption, to keep your portfolio as balanced and neutral as possible.
- A key part of assessing your portfolio needs is understanding your portfolio balance — see episode 51 and episode 55. Understanding your portfolio balance will allow you to choose the directional trade to match.
- Scanning for trades should not take a lot of time. You should really have a pretty set schedule on how you scan, filters you use, and what you do in your scanning — can use our Watch List Software on the Option Alpha platform.
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. Well, then you can still make a directional trade because you understand your portfolio needs.