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The biggest market drop in recorded history on Monday… a wild end-of-day plummet on Tuesday… a huge up day on Wednesday… and more bullish action today?
Talk about opportunity!
Right now, the only real barrier to trading profits is a stock that doesn't move.
So in times like this, I like to use a really great tool that identifies what I call my "Top Movers" – the stocks and ETFs that have had the biggest percent moves and best correlation to the market.
Then I can focus on finding the best stock with the best option trade and the best potential to double in value on the smallest move in the stock.
That's a lot of "bests."
This is a really simple tool, and I know you'll like it.
The Second-Biggest Obstacle to Options Profits
When trading options, time decay – the loss of value as expiration approaches – is the biggest obstacle to profits.
But the second-biggest obstacle is a stock that does not move.
You can do all your homework and make all the right moves, pick a solid stock with good fundamentals, even anticipate where the markets are going in the weeks ahead.
But if the underlying stock or ETF doesn't move, your options will simply waste away.
When the stock does not move, day after day, the time decay is even worse. You're not getting any stock price move that is either intrinsic to counter theta decay, or you're not getting any stock price move that gets your options close to "in the money" to get you that intrinsic value increase.
This is why I favor the "in the money" (ITM) options to begin with on my shorter-term directional long call or put option trades.
You can probably see where I'm going with this. The best way to avoid this is to trade calls and puts on stocks that move in price. You can see movement or volatility in price by looking at a chart. If a stock trades sideways in a range for three, six, or more months, that is not a stock to try and trade options on.
That's not to say you should avoid any stock that trades sideways. If that sideways range trades slightly up or down in trend but has a five-point range between support and resistance, then trading options on that stock becomes very lucrative indeed.
I am not a fan of going through all the "optionable" stocks one by one on a charting program. There are over 2,500 optionable stocks, and when you add in ETFs and indices, that number goes way up. Trying to go through them one by one will eventually drive you crazy.
Fortunately, I've developed a great method to whittle it down to the 10 best stocks at any given time.
How I Find My "Top Movers"
About the Author
Tom Gentile is widely known as America's #1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Now, he's diving into the biggest market in the world - one that almost no one has heard of before.
I appreciate the article on how you filter the 10 top, but I cannot find the Penny Pilot list on the CBOE. Can you direct me on where this is?
Very educational article. What site is best for screening for options. I am currently with Etrade and any guidance as how to navigate would be appreciated. ALSO an weekly update and list of search criteria could be very helpful.
I just want to tell anyone who trades options w/ ETrade as I did for 10 yeas; they are not giving fair sell prices at the open as they once were. In other words; I always sell my options first thing in the morning & let's say I had some Tesla calls to sell.
The ask price may be $15.00 but if I have $12.00 as my ask; then that's what they give me. In the past, they would give me $15.00. I even called them on this & they made excuses, but the bottom line is that I changed to another brokerage house & am now getting the fair price! ETrade has gone down hill in the past year…just my opinion.
Mr. Gentile,
I read your case study on how to double your money with Aapl options in 27 days, which you illustrate by your trade opened on April 19 with Aapl @ 125,15 by buying the May15-125Call @ $4,85 – this then being ALL time-premium "value".
Then you hold this option till expiry – as it never got to your 135 target price, the top arriving on April 28 @ 134,54 (that being indeed Aapl's all-time nominal high) – this date being your May15, when the stock closed @ 128,77: Rendering you (gross) proceeds of $3,77 for the effort (option).
How do you calculate your net profit here?
Hi Tom, I think this article is great. However when I get to the CBOE website Penny Pilot Program page, I am having a hard time figuring out how to enter the search criteria. Any help would be appreciated.
Thank You
John
I've spent over an hour trying to find the Penny Pilot Program/List on the CBOE website. I find references to the program, but not program information or the list. And yes, I am a registered user. How about a URL to help those of us that have been unable to find the Penny Pilot Program page?
This is the webpage
https://www.cboe.org/hybrid/pennypilot.aspx
But good luck trying to figure out how to enter the search criteria. If you figure it out please post it….I hope this helps
How's that Pandora trade workin' out for ya?
Oh sorry, we were supposed to forget about that one. Like it never happened.
Shhhhhhh.
Hi Everyone…
Penny Pilot Criteria – https://www.cboe.org/hybrid/pennypilot.aspx
You don't actually enter any data… You want to click on and download the penny pilot classes. Then use it however you like to create lists for your own taste.
Software – thats a tricky one, I use my own stuff, but there are actually a few brokers out there that incorporate the penny pilot list into their own criteria.
Apple – that trade ended up being a double due to the move in the options, not so much the stock. Your right, the stock never made it to 135, but it didn't need to for the options to return 100%. Same thing happened with Priceline, the stock actually gapped up and fell afterwards, but our case study here ended up with a triple. Its the percent to double rule I look at, which I will be writing an article on shortly.
Pandora – Oh you got me! Seriously nothing works 100%, if anyone told you that it does… RUN. As for my P trade, I actually modified it into a bearish butterfly to cut the cost and risk, and though it didn't work either, I am down a not much more than the cost of commissions. I have always said it isn't how you treat your winners, its how you handle your losers that keeps you in this business.
Great article