Scanning for Option Trades for Beginners
One of the more difficult aspects for newer options traders is finding suitable products. My general preference is index and sector ETFs and SP500 stocks. However, a common thread for beginners is small accounts. This comes with inherent product constraints.
This video dives into my thoughts and a practical example, below is a summary:
How to Scan for Option Trades for Beginners
Working with capital constraints is challenging early on. I find it’s important to start the scan by understanding what strategy are we looking to deploy. A cash secured put will have different criteria than a call LEAPS diagonal.
If I was to start again with a smaller account, my scanning would look a lot like what I do now, I simply wouldn’t be able to trade most of what I do now.
For scanning criteria, I look for:
-All optionable crossed against weeklies. I like the opportunity to use weeklies when adjusting trades as needed.
-If I’m trading any longer term strategies (LEAPS Call Diagonal or Covered Strangle) I’m sure to add some basic FA views. Free cash flow growth, sales growth, PEG, etc.
-If shorter term strategies or hypothesis, I focus more on multiples.
(When trading within a year, multiples make up a larger portion of an underlyings performance when compared to over a year, where it starts to favor sales, revenue, FCF.
Be sure NOT to chase high premiums if you’re a premium seller, there’s a reason they’re high. Find a healthy risk to reward balance. For buyers, don’t be super cheap with near dates far OTM (low delta) options. These are incredibly low probability and lead to slowly bleeding out.