Hey traders,
I get this question a lot: What makes a good stock for options trading?
The answer is pretty simple—it all comes down to two key factors:
Volatility and Directional Bias
Volatility is the first thing I look for.
Volatility is measured in beta, and here’s what that means: The broad market has a beta of 1.
Any stock with a beta greater than 1 is more volatile than the market, and that’s a good thing when you’re selling options.
More volatility means you’re going to get a higher premium for those options.
The second factor is directional bias. This is key because it tells you which way the stock is moving.
If a stock is trending higher, that’s a great setup for selling covered calls or placing bull put spreads.
If the stock is trending lower, you’d be looking at using puts or trading bear call spreads.
So, whenever you’re looking for a stock to trade options on, make sure it’s got volatility and a clear directional trend.
Trade well,
Jack Carter
P.S. If you missed my appearance on Publisher’s Roundtable this morning, go check it out right now! The guys and I had a great chat about the current market, election volatility and our favorite trade ideas!
