Top 7 stocks suitable for stock options trading
In this article, we will discuss the top 7 Stocks suitable for option trading. Options are agreements that grant the contract holder the right to purchase or sell a certain asset at a defined price (the strike price) within a predetermined window of time (the expiration date). The person holding the contract is not required to purchase or sell the underlying asset. In most cases, exercising an option at the strike price would not be advantageous to the investor holding the option.
Investors who sell and trade options bet that the underlying stock price won’t rise above the strike price. They make money by charging premiums when they sell the contract.
New investors are often preoccupied with buying and selling stocks. These types of trades are straightforward and simple to grasp. Buying and selling options, on the other hand, have distinct advantages. Many investors begin to investigate options-related opportunities as they gain experience.
However, Stock options trading necessitates has very different strategies than stock trading. Stocks that make sense for increasing your portfolio’s strength, stability, or growth potential aren’t always the best stocks for trading options.
These companies are frequently listed as the best stocks for trading options because they are just unpredictable enough to create some suspense without being so volatile that the risks far outweigh the potential rewards.
Read Also: Stock Options Trading Strategies For Small Portfolios
1. SPDR S&P 500 ETF (SPY)
This ETF tracks the S&P 500 index. The S&P 500 index represents the 500 largest publicly traded companies in the United States and serves as the primary benchmark for the overall stock market. It is by far the most heavily traded options stock, as many options traders prefer to bet on the overall performance of the stock market rather than the direction of a single company.
2. Netflix (NFLX)
Given the gains made by Netflix over the last year, it’s easy to believe that share prices will continue to rise. Nothing could be further from the truth, however. In fact, the most popular video streaming service has near-constant ups and downs.
3. Apple (AAPL)
Apple is the largest company in America, with a market capitalization of more than $2.5 trillion. Normally, a company of that size and stability would be an unlikely candidate for options trading, but Apple is more than twice as volatile as the market average.
4. Tesla (TSLA)
Tesla has been trading with very high implied volatility. This means that options traders anticipate large price swings in either direction in the near future. Part of the reason for all of that implied volatility could be Elon Musk, the company’s unpredictable and controversial leader, whose ongoing battle with Twitter has caused major ups and downs in Tesla stock recently.
5. Nvidia (NVDA)
Nvidia, like AMD, has recently seen massive price swings as its primary technology has been targeted in a trade war with China.
6. Advanced Micro Devices (AMD)
The US government has taken steps to prevent AMD from exporting its most advanced and sophisticated chips to China, causing the kind of wild volatility that options traders love to bet on and against.
7. Invesco QQQ Trust (QQQ)
This ETF tracks the Nasdaq 100’s non-financial stocks, so it is heavily weighted toward technology. Large-cap growth stocks in the technology sector are more volatile than the market as a whole.
Can You Make Money Trading Options?
One of the reasons that options trading is so appealing is that there is room for profit during times of volatility, regardless of which way the volatility moves. Options traders speculate on the future direction of a security, an index, or the entire stock market.
It also allows them to buy or sell assets in a contract before the contract’s expiration date without being forced to do so.
Trading options can make you rich, but most options investors, according to Merrill, use strategies that limit their risk while also limiting their potential gains.
Some strategies, such as uncovered short calls, expose options traders to the risk of unlimited losses. When you buy options as a long call, the potential gain is unlimited, but the maximum loss is limited to the premium paid.
Read Also: Can you Make a Living from the stock Market
Conclusion
Options trading is riskier and more complicated than standard buy-and-hold stock investing — but that doesn’t mean that everyday retail investors can’t learn how to do it. Learning, however, should come before doing. Conduct as much research as you can and decide on a strategy before you dive into options trading.
FAQs
Is it a good idea to buy options
When purchasing an option, the maximum potential loss is the premium paid. As a result, the risk of purchasing options is low, while the potential for reward is high. As a result, purchasing options is a good idea.
Are options more secure than stocks?
Purchasing options requires a much lower capital commitment than purchasing stocks. In addition, when compared to stocks, the downside for options is limited. Many traders consider options to be safer than stocks.
How do you teach beginners how to trade options?
Beginners must fully understand the potential ramifications of options trading before entering a trade. Traders must be able to easily identify and comprehend the underlying asset, as well as its strike price, expiration date, and premium.
Learn about How The Stock Market Works