Most investors know that options can boost returns with lower risk, but finding the best stocks to trade options on can be tricky.
That's where we come in. We're options trading experts, and our mission here is to help investors and traders like you make money.
You see, not all stocks are good for options trading. In fact, not all stocks even have options in the first place. But for those that do, there are a few traits we look for in order to increase your odds for success.
First of all, you want the stock you're trading options on to be very liquid. That means it has to trade a couple hundred thousand shares a day, on average. Stocks that trade small amounts do not have sufficient supply and demand factors and usually have very inefficient pricing. What that means is the price you see may not be the price you get. Even worse, it may mean you can't sell when you're ready because there aren't enough buyers.
The quick way to check to see if your stock or option is liquid is to look at the bid-ask spread. If you see a wide range between prices, then it's a sign there aren't a lot of buyers and sellers. If the gap is just a few cents off, then you know the stock is trading hands often.
Next, you want to consider costs.
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Some stocks are so popular, like Amazon.com Inc. (NASDAQ: AMZN), that their options also have very high prices. Remember, it is the low price of an option that gives it its profit power though leverage, so overpaying for the option undercuts your chance at making money.
That doesn't mean you can't trade options on these stocks, but you'll need to use a strategy like spreads to keep your costs under control.
Finally, you want stocks that will move in the direction you want them to. For the simplest options trades, this mean the stock is likely to go up or go down soon. Otherwise, if you buy a call option on a stock that stays flat, then you won't make any money.
Now that you've got a good idea of what kind of stocks are good for options trading, we'll do some of the heavy lifting for you.
Money Morning Millionaire Trader Andrew Keene's proprietary system sifts through the noise to find stocks that have the tight characteristics that make them good for options trading. He has found six stocks with options you can trade right now.
The Best Stocks for Options Trading Now
These six stocks fit the bill for what we're looking at. These might not be household names, but they will likely have the volume we need to make money, you'll be able to get in a reasonable price, and Andrew has flagged them as potential movers.
Let's dig in...
JOYY Inc. (NASDAQ: YY) runs a massive Chinese social media network called "YY.com" with more than 300 million users. It uses an addictive "virtual currency" feature where users can earn by making, for instance, karaoke videos - a whole bunch of different things. The stock can move, too, as it has more than doubled since its March low.
Cerus Corp. (NASDAQ: CERS) sells the INTERCEPT Blood System, which is said to keep blood products safe from pathogens. This is especially valuable as the world deals with the pandemic. The stock is low-priced but can also move, more than doubling since March.
Element Solutions Inc. (NYSE: ESI) is a chemical company that manufactures specialty compounds for everything from consumer electronics to oil production and drilling. It is getting a lot of institutional interest now after closing a deal for $800 million in bond market financing.
Equity Residential (NYSE: EQR) is a residential real estate investment trust with stakes in more than 300 properties with nearly 80,000 apartments in major markets. Unlike the other stocks in this list, EQR's market is getting decimated by COVID-19 as people flee the cities. That means big opportunities for bearish bets, which are just as suited to options trading as bullish bets are on other stocks.
Tapestry Inc. (NYSE: TPR) is the former Coach Inc., a luxury fashion holding company, with brands including Stuart Weitzman and Kate Spade. This stock flies in the face of the pandemic, but its wealthier customers are already recovered. The stock appears poised for a breakout that could surprise Wall Street.
American Superconductor Corp. (NASDAQ: AMSC) designs and builds power systems and superconducting wire and will play a huge role in upgrading the electrical grids in the United States and Canada. The stock more than tripled since March, but it is still well off all-time highs. That means there is more room to grow.
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While most investors watched their hard-earned money evaporate during the 2008 recession, Andrew Keene collected thousands per week by developing the ultimate indicator.
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