Digging Deeper Into Volatility: How Beta Helps You Find the Best Stocks for Options Trading

Hey traders,

Yesterday, I walked you through two key factors I look for when finding the best stocks for options trading — volatility and directional bias. If you missed that post, I highly recommend going back and checking it out.

But today, I want to dive a little deeper into volatility, specifically the role beta plays in determining just how volatile a stock is — and why that matters so much when you’re selling options.

What Is Beta?

So, what’s beta, and why do I care about it when I’m trading options?

Simply put, beta is a measure of how volatile a stock is compared to the overall market.

The market itself has a beta of 1. If a stock has a beta of 1.8, it means it’s 80% more volatile than the overall market.

A stock with a beta of 0.5 would be 50% less volatile than the market.

It’s a simple way to gauge just how wild a stock’s price swings can be.

How to Find a Stock’s Beta

Finding a stock’s beta is actually pretty easy. Most financial websites and trading platforms provide it as part of their stock info.

You can find it on places like Yahoo Finance, your broker’s platform, or even just by searching “stock name + beta.”

Once you’ve got that number, you’ll know how much volatility you’re dealing with.

What Beta Means in Real Terms

Here’s the key takeaway: A stock’s beta gives you a snapshot of its volatility compared to the market.

  • If a stock has a beta of 1, it’s moving roughly in line with the market.
  • If a stock has a beta of 2, that means it’s twice as volatile as the market.
  • And if a stock has a beta below 1, like 0.7, it’s less volatile than the market.

So, if the market goes up or down 5%, and you’re holding a stock with a beta of 2, you can expect it to move 10%. Double the market’s movement.

Why Higher Beta Is Great for Selling Options

When you’re selling options like we do, higher beta stocks give you one big advantage: bigger premiums.

That means you get paid more for selling an option on a high beta stock than you do for selling an option on a low beta stock.

Volatility creates bigger price swings, and that means buyers are willing to pay more for the chance to profit from those swings. That’s where your edge comes in when you’re selling puts and calls or credit spreads.

For example, let’s say you’re selling a put on a stock with a beta of 1.8.

Because the stock is more volatile than the broad market, the premium you collect on that option is going to be higher than if you were trading a stock with a beta of 1 or below.

And when you’re selling options, that extra premium is money in your pocket right from the start, as soon as you place the trade.

Beta Isn’t Everything

Don’t get me wrong — beta isn’t everything. It’s a powerful tool, but you need to consider a stock’s directional bias, too.

That’s why I always look for trending stocks with clear directional movement — up for bull put spreads or selling puts, or down for bear call spreads or selling calls.

Volatility + direction = the magic combo when it comes to options trading.

Summing It All Up

Next time you’re scanning for stocks to trade options on, make sure to check their beta.

The higher the beta, the better your potential returns when selling options — because higher beta means bigger premiums.

But don’t forget to factor in the stock’s trend to make sure you’re stacking the odds in your favor.

Trade well,

Jack Carter

P.S. Geof Smith is talking about the year-end Uranium boom and how he plans to trade it. Check out his video.

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