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.