Hey traders,
Last week, I walked you through the importance of selling options and letting time decay work in your favor.
But here’s the thing: Even when you’re selling options, you can’t just pick any stock out there. You need to be smart about which stocks you trade on if you want to stack up those consistent wins week after week.
So today, I want to go over a few simple rules I use to filter down the list and find solid stocks that are worth trading.
These rules keep me out of trouble and make sure I’m not wasting my time on stocks that have no business in my portfolio.
The 5 Rules I Use to Pick the Right Stocks
Before you pick a stock to trade, you’ve got to filter it down to make sure it’s solid. Here are my five rules for doing that:
- The Stock Must Trade on a Major Exchange
This is non-negotiable. Only look at stocks trading on the NYSE, NASDAQ, or AMEX. No OTC (over-the-counter) stocks. Why? Because OTC stocks lack the liquidity and transparency you need to trade options safely. - No Penny Stocks or Crypto-Related Stocks
You know the type — the ones you see hyped up all over social media. Avoid them like the plague. They’re way too volatile, and while that might sound good for selling options, they’re also prone to massive swings that can wipe you out. Stick to companies with solid foundations. - The Stock Must Be $15 to $25 or Higher
This rule is crucial. I want the stock to be at least $15 to $25 per share. Anything less, and you’re dealing with companies that haven’t proven their worth. Higher-priced stocks tend to be more stable and attract institutional traders — the big players who keep things moving smoothly. - Must Trade 500,000 Shares Average Daily Volume
Liquidity is king when you’re selling options. I want stocks that have a daily trading volume of at least 500,000 shares. Why? Because higher volume means tighter spreads and better fills for your trades. It also means you can get in and out of positions without getting stuck. - The Stock Must Be in a Really Nice 6-Month Trend
This one’s key. I want to see a solid trend over at least six months. Not just a blip on the radar, but a consistent uptrend or downtrend that shows me the stock is moving with purpose. If you’re not sure how to spot a trend, I’ve got a detailed piece I wrote on spotting trends you can check out.
How to Find These Stocks
I use my custom TrendPoint software to scan the market and find stocks that meet these criteria.
But you can still do this using free tools like this Finviz scanner or even your broker’s platform. Just plug in the rules I’ve shared, and you’ll have a solid list of potential stocks to trade.
The Bottom Line
Remember, trading is all about stacking the odds in your favor.
Following these rules is how I make sure I’m only selling options on stocks that give me the best chance of winning.
So, before you dive into your next trade, make sure the stock checks all these boxes. Trust me, it’ll save you a lot of headaches in the long run.
Trade well,
Jack Carter
P.S. Speaking of picking the right stocks… The Fed meeting is this week… and that’s bound to create a lot of volatility. Before you trade a single stock, take a look at these 10 tickers I’m watching like a hawk!
