How to Select Best Stock for Option Trading: Points to Consider

-

Best Stocks for Options Trading Means

In option trading, you buy the call or put or trade with the combination of both types of contracts in your trading strategy to maximize the profits and minimize the losses. Hence, the best stock means it should have enough trading volume and move as per the market trend.

Apart from that there should be various strike prices so that you can choose the right one as per your risk-bearing capability and budget. The most important thing is that there should be enough volume of trade to easily buy or sell the option any time before the expiry.

Points to Consider While Picking Stocks for Option Trading:

  • Volume of Trade — As we told you except main indices, there is a low volume of trades in most of the stocks or other index trading in the option market. Just like intraday trading or short-term trading, volume is one of the most important factors that need to be considered while looking for stocks in option trading. Low volume of trade is any stock option is not suitable from any angle.So, check the daily average volume in the stock option you are looking to take a position. Low trading volume will not only make you difficult to enter and exit from such trade positions but also can be also risky if you are unable to square off your position before expiry.
  • Liquidity in Strike Prices — Similarly, just like volume you also need to check the level of liquidity in the various strike prices of a stock option. Mostly the strike prices closer to the spot price have sufficient liquidity and the strike price too far away from the current market price will have negligible liquidity. To find out the liquidity level in a stock option you can check the number of contracts traded in a particular call or put strike price. The liquidity in the stock option also very much depends on the expiry date of the contract, time value and decay, hence make sure the stock you choose has enough liquidity to trade so that your trading strategy can work.
  • Analyses the Open Interest — Open interest is one of the most important factors that you should always consider while taking positions in any type of option contract. Nifty open interest is the number of contracts open in Nifty index option of particular strike price for a particular expiry month. A stock option with the highest number of open interest in its contracts is best for option trading.Just like the strike price, the near-month strike price closer to the spot price has the highest level of open interest. However, with the change in the market trend sentiments of the traders towards the particular stock keep changing as per the increase or decrease in price change.
  • Evaluate the Volatility Factors — volatility (VIX)is one of the most important factors in options trading and intraday trading or short-term trading. Volatility is the magnitude or frequency of fluctuation in the price of an underlying security. In option the high volatility means there is high potential to give the returns but high volatility means it also increases the risk level.

Comments

Post a Comment

Popular posts from this blog

IPO allotment for retail: how are shares allotted for the retail category

-
Image
  IPO allotment refers to the process of allocating shares to investors who have applied for them during an initial public offering (IPO). It is a crucial step in the IPO process as it determines how many shares each investor will receive based on various factors such as demand, availability, and regulatory requirements. The IPO allotment is typically conducted by the underwriters or syndicate members, who carefully assess the applications and allocate shares accordingly.   The importance of IPO allotment for retail investors The IPO allotment is particularly important for retail investors, as it allows them to participate in the offering and potentially benefit from the company's growth. It provides an opportunity for individual investors to own a stake in a publicly traded company and potentially generate returns on their investment. Additionally, the fair and transparent allocation process ensures that all investors, including retail investors, have an equal chance of rece...
Read more

How to Deploy Strategy in Algo Test with Moneysukh Trade Radar

-
Image
In Algo Trading software like Algo Test or Trade Radar, you can choose from existing strategies or create your own strategy as per your expectations from the market. However, choosing or creating the strategy would be not enough to make it successful. The right deployment is equally important to make your strategy effective and work efficiently. To execute your option strategy while trading through Algo trading you need the right approach to deploy the strategy in your  Algo trading  software. Here we are going to discuss, how you deploy your option strategy efficiently with strategy deployment features with stepwise guidance to deploy the strategy through your broker’s trading account. Key Requirements to Deploy Strategy To deploy the strategy you need certain details to log into your trading account etc. Let's find out what are other details required to deploy a strategy in Algo. Algo Account to Login First of all, you need a trading account through which you can get access ...
Read more

How to Decide Best Entry & Exit Points in Intraday Trading?

-
Image
  Intraday Trading also known as Day Trading is the one-day game in which you have to buy and sell or vice-versa on the same day before market close.  Intraday trading  is not easy, especially for inexperienced traders who find it difficult to select the right stocks or don’t know where to enter into trade and exit timely. Also Read:  How to Do Intraday Trading: Best Stocks, Charts & Strategies Entering and exiting at the right points in  intraday trading  is one of the most crucial decisions to make your day trading successful. Today in this article we will tell you how you can decide the entry and exit points in intraday trading. What are the Entry and Exit Points in the Trading or Day Trading? In long trade positions or buying, the entry point is the best possible level at which you should  buy the stock  so that there are fewer chances of hitting the stop loss and there is a possibility of movement in the stock to give you some profits. Co...
Read more