If there is one thing an options trader loves, it's a market that moves. The farther and faster, the better. And that's why the 2020 crash and supersonic recovery has created fertile ground for options traders.
The problem is that not all stocks are created equal. You can trade some for outsized profits, but some just won't keep moving in the direction you want them to move. For the latter group, they are not worth your time or your money.
What options traders look for in a stock is one with predictable, sustained movement. That way, you can tailor your options strategy to the stock and repeat it over and over. Unlike investments you can set and forget, traders need stock action in the short term.
We're here to help you find these stocks people like to trade. That means there is money behind them and the potential to move and sustain drives in September through the rest of the year.
A lot of stocks fall short.
Take, for example, homebuilding stocks. We all have read that people are fleeing the cities to escape the pandemic and the lockdown it brings. Housing starts are way up, and this demand, paired with low interest rates, has pushed buyer traffic to all-time highs.
So homebuilder stocks should be good, right? Not so fast, says Money Morning Millionaire Trader Andrew Keene. You see, the cost of lumber is skyrocketing. Demand is high, but the mills were shut down for months thanks to the virus. And not only that, but the pandemic has quashed transportation and labor. They can't mill it and get it to the end user.
If homebuilders can't get lumber, then they can't build. And if they can't build, they can't sell houses. There goes the bottom line.
In other words, if you're looking for stocks for options trading, you might run out of luck with these homebuilders. Their growth could hit a wall - and soon.
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But the pandemic has been good to a related industry. With people staying home, the interest in fixing up their houses and even renovating them is up, too. Money not spent on restaurants and travel is finding its way to home improvement retailers.
And that brings us to Andrew's first stock to trade options on...
How to Find the Best Stocks for Options Trading
Andrew is looking at Home Depot Inc. (NYSE: HD) for a short-term play on this booming market. On Aug. 18, the company reported a 25% profit surge to $4.33 billion, or $4.02 per share. It is a great play on a strong stock in a strong industry.
The stock has been a leader since the March low and shows no sign of slowing down. It eased back last week to relieve overbought conditions, and money continues to flow in, according to technical studies measuring the aggressiveness of buyers. That means demand for shares is still strong.
And that makes it perfect for options trading. You can buy calls on this stock and keep riding it higher.
But home improvement isn't the only sector with legs.
Everybody has likely not only heard of home communications company Zoom Video Communications Inc. (NASDAQ: ZM), but has probably used it to talk to the office, the kids, and even Grandma when they can't it in person.
Zoom has been an ultra-hot stock since March, but it stumbled a bit this summer, moving more sideways than higher. All that may be changing now as the stock started to climb again. Zoom is not going away so fast as most schools are not bringing students back into the classroom full time this fall. And many businesses have already said that they are keeping employees at home until at least 2021. From class lessons to shareholder meetings, Zoom has a huge market.
That makes it a great stock for options traders. Call options would be a good choice here, too. So would bullish call spreads to bring down the cost of what are relatively expensive options.
Finally, our last stock to trade options on is ready to break out again.
Retailer Target Corp. (NYSE: TGT) was a disaster a few years back. Amazon was eating its lunch, and unlike its brick-and-mortar peers, Target could not figure out an online strategy. But things have turned around, and it quickly erased its pandemic decline with new all-time highs.
On Aug. 19, the company reported record-setting quarterly profits and soaring sales. More importantly, digital comparable sales nearly tripled. The stock jumped 12.6% the very next day to confirm a long-term technical breakout.
It is a little bit extended here, so call options with limit prices just below the current market would be a possible play here. Let the stock come back to you, and don't chase it.
He Made Millions Trading for an Hour Before Breakfast
Andrew Keene was living with his parents. Two years later, he had $5 million to play with - all because of this one strategy.
The crazy thing is you can do it in less than 90 minutes a week.
To see how easy your life could be, click here.