At a minimum, you should start your prep work at 8 am. I'm humbled that you took the time out of your day to listen to our show, and I never take that for granted. Market-wide events are those that impact the broad markets, such as Federal Reserve announcements and economic data releases. Watch, study and learn that one stock. Options trading strategies come with varying degrees of complexity.
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.
Risk Versus Reward
Writing a Covered Call. If you are a call or put buyer, picking the wrong strike price may result in the loss of the full premium paid. This risk increases the further away the strike price is from the current market price, i. In the case of a call writer, the wrong strike price for the covered call may result in the underlying stock being called away.
Some investors prefer to write slightly OTM calls to give them a higher return if the stock is called away, even if means sacrificing some premium income. For a put writer , the wrong strike price would result in the underlying stock being assigned at prices well above the current market price. Picking the strike price is a key decision for an options investor or trader, since it has a very significant impact on the profitability of an option position.
Doing your homework to select the optimum strike price is a necessary step to improve your chances for success in options trading. For further reading, see: Risk-Reward Payoff Your desired risk-reward payoff simply means the amount of capital you want to risk on the trade, and your projected profit target. Each option contract generally represents shares. For a call option, the break-even price equals the strike price plus the cost of the option. Commissions are not considered in these examples to keep things simple, but should be taken into account when trading options.
Writing a Covered Call Scenario 3: Risks of Picking the Wrong Strike Price If you are a call or put buyer, picking the wrong strike price may result in the loss of the full premium paid. Points to Consider Consider implied volatility when determining strike price: Implied volatility is the level of volatility embedded in the option price.
Generally speaking, the bigger the stock gyrations, the higher the level of implied volatility. New option investors should consider adhering to such basic principles as refraining from writing covered ITM or ATM calls on stocks with moderately high implied volatility and strong upward momentum since the odds of the stock being called away may be quite high , or staying away from buying OTM puts or calls on stocks with very low implied volatility.
Have a back-up plan: Option trading necessitates a much more hands-on approach than typical buy-and-hold investing. Have a back-up plan ready for your option trades, in case there is a sudden swing in sentiment for a specific stock or in the broad market.
Time decay can rapidly erode the value of your long option positions, so consider cutting your losses and conserving investment capital if things are not going your way. Evaluate payoffs for different scenarios: Pramod Kumar's answer to What are some options strategies with small investments and high profits? What is the risk reward ratio in this case?
Pramod Kumar's answer to What should everyone know about options trading? Day trading can generate money quickly in stock markets. You just need to adopt some of the stock specific parameters or indicators that can help you to find top day trading stock picks from markets. Generally, intraday traders lose money mainly due to wrong selection of stocks.
If you can confidently stick to stock selection guidelines then success is more likely. Here are some of the best methods to choose top day trading stock picks:. You can find this interesting article in detail at following link: Which stocks to choose for option trading would depend upon trader risk profile. Option premium is calculated mainly by implied volatility, beta and time to expiry of stock so higher the beta higher would be premium and accordingly lower the beta lower would be the premium on option.
Beta and Iv are available at public domain. So you have plenty of options to choose depending upon your trading model and you need to decide whether you would pay premium or receive and if you plan to pay premium you can pick high beta stock while I would not recommend to sell naked option of high beta stock and if you still wish to receive premium you should do spread so that your maximum loss is also defined.
You can play a event like result by buying both call and put option of stock before results. A word of caution: My answer below is in context of Indian markets. Options are mostly traded on Nse. If possible better to trade index options like Nifty or BankNifty options, they are very liquid. Stock options are less liquid, few are okay to trade you can check last few days bhavcopy on nse website and get most traded stock options at the exchange.
Premium percentage are factor of the option pricing parameters read about option pricing models. My advice would be first paper trade for sometime before jumping in the sea, and start really small. As much as possible avoid naked positions overnight, because even one days loss can wipe out a couple of years profit in case of naked options. There is no set rule to decide that. The reason for this is simple. Whenever you wish to square off, liquidity will come in handy.
Also, ITM options tend to follow price action more closely than OTM options and hence have very negligible time decay. Very far OTM options tend to lose money even if price moves in the right direction. To earn with far OTMs, you need price to move extremely quickly in the correct direction, a rarity.
This page may be out of date. Save your draft before refreshing this page. Submit any pending changes before refreshing this page. Ask New Question Sign In. How do I choose stocks for options trading? I'm a student and an avid day trader. You have defined yourself as an avid day trader. Anyone can be a trader. Very few are successful traders. The following example will explain: Simple options trading guide. Most options traders lose because they don't know this simple formula.
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Strike Price Considerations
Which stocks to choose for option trading would depend upon trader risk profile. Option premium is calculated mainly by implied volatility, beta and time to expiry of stock so higher the beta higher would be premium and accordingly lower the beta lower would be the premium on option. Beta and Iv are available at public domain. The strike price of an option is the price at which a put or call option can be exercised. Also known as the exercise price, picking the strike price is one of two key decisions (the other being time to expiration) an investor or trader has to make with regard to selecting a specific option. Choosing the Right Trading Strategy. In our guide to getting started with options trading, we went into detail about the various steps involved in trading options; including the preparation required, choosing a broker, finding opportunities to trade, and writing a trading plan.