Options & Finding Volatile Stocks

[IZCinvestments]

Im new to trading altogether. Im 25 years old and I have recently started looking into the stock market. Options specifically caught my attention seeing as I dont have much money to invest with (under $1,000 initially, but I am willing to make trading my full time job if need be and hope to aggressively increase my investment amount by putting my earnings back in.) and with option trading I can use the leverage to make money with the small amounts I can invest. So far I only have an understanding of Call & Put options as well as Straddle and Strangle strategies. I am still learning and looking for new strategies to use with the small funds that I have. I have just started a 6 month Investools educational subscription which I received from TDAmeritrade which goes in depth about all aspects of trading however I am in need of some actual hands on trading tips right now because I have been trading on my paper money account.

I understand that for Options I need volatile stocks which will have lots of movement (especially with the straddle strategy which I like so far). I need some help on how I can identify those stocks. I understand that the Vega expresses the volatility of the stock in question, but how do I know which companies to look for specifically, where can I look for these companies. Maybe there are some specific newsletters or something which Im not aware of that will help me when it comes to identifying these stocks.

Also I would really appreciate any sort of advice or tips that I can get on this or any other strategies or aspects of trading that would be possible in my current situation (small amount of funds). Im looking for people to learn from, Im very eager to receive any information that I can. Thank you!

 

[bookish]

OK,

First, Keep paper trading, don't trade for two or three years. Save your money.
BUT, if you do go ahead and trade you will probably wipe out your account which could actually be good for you and teach you a lesson. A lot of traders do that two or three times before they figure it out.

With $1000 you would be a lot wiser to invest in a home based business. Even the cliche weekend lawn mowing would be good. Start with a used push mower and weed eater. If you go this route invest no more than 250 getting started because you will have surprises. Buy 2-3 entrepreneurship books. Do a survey/drum up customers BEFORE you spend money.

Regarding stock. You are competing with genius Phds in a market that is valued 30+ times earnings, compared to 3-10 times earnings for small businesses. Its a foolish thing to waste your time learning about or attempting to do, but I understand you can't resist. Think of it as a hobby and not a source of income.

Answering your question:
You can buy, or you can sell. Selling means a higher required account value, lots of small wins with occasional large-sh losses. Over all you really do feel like you are picking up pennies in front of a steam roller. Buying means lots of losses followed by occasional large - but not large enough wins. Back to account value. Very seasoned expert traders usually don't trade (risk) more than one twentieth of their account value at any one time. Unless you are better than them, you should trade less. Unless you want to get killed on commissions you will need to trade a minimum of 500 (more likely 2000) per trade and have 3-10 trades open at a time for diversification. that's 1,500-20,000 in the market and a 30,000 to 400,000 account value.

When selling you want to sell stocks that are going to decrease in volatility and not move in price or move so that the price of the option decreases, unless doing a calendar spread. When buying you want to buy stocks that are going to increase in volatility and move in price in the desired direction. Neither of these things happens. Suppose you buy a call. Either the price goes down, which should increase implied volatility, or it goes up to an anticipated level which would decrease implied volatility. This in general is the rule but there are exceptions. Making it oh so much worse is the bid/ask spread. As a new trader your best avenue would be finding niche opportunities in thinly traded stocks that the big boys don't bother with. These all have a high bid/ask that ruins it. The stocks with a narrow bid/ask are the ones where you are competing with math and statistics experts running advanced custom software. neural networks, etc. in warehouse sized data centers with teams of ambitious analysts backing them up. You might have better odds fighting with Somalis over food or going to Vegas, were it not for them robbing you on the way out the door. By the way, I've had brokers do that to me. NEVER put money in small corrupt countries. (small = corrupt) unless you are prepared to hire a team of mercenaries, go there murder everyone in the brokerage, take over, hire replacements and kill/bribe the local police. In which case you should probably just do that first. The real bitch about the bid / ask is market movement. Any sudden increase or decrease in price will usually cause the bid / ask to explode killing profits for both buyers and writers. Worse still, some brokers will always fill your order at the extremes of the bid / ask spread while others will get you a little closer to the middle.

If you want to play buying options based on price movement your best bet is probably trading around earnings. You can google it.

 

[IZCinvestments]

@bookish can you please explain what you mean by "trading around earnings"?

And yea I understand what your saying but I am looking for a way to make real money as soon as possible and thats why Im trying to learn as much as possible before I actually start trading. Ive had success on my paper money account in the past and recently since I recently started trading on it again with more realistic amounts. I reset my balance to $1,500 again and I'm gonna try to bring that up to 5k or so by the end of the week if I can. Once I see that Im getting the hang of this Im gonna try to make some real money with it while still learning as much as I can about new strategies and about the market in general. Im hungry man and Im looking to make some money, and I can use all the help I can get lol.

 

[bookish]

@bookish can you please explain what you mean by "trading around earnings"?

And yea I understand what your saying but I am looking for a way to make real money as soon as possible and thats why Im trying to learn as much as possible before I actually start trading. Ive had success on my paper money account in the past and recently since I recently started trading on it again with more realistic amounts. I reset my balance to $1,500 again and I'm gonna try to bring that up to 5k or so by the end of the week if I can. Once I see that Im getting the hang of this Im gonna try to make some real money with it while still learning as much as I can about new strategies and about the market in general. Im hungry man and Im looking to make some money, and I can use all the help I can get lol.

For a 5k down payment, if you are careful, you can buy a duplex with a fha loan and make 100 percent a year on your money. You should do that. Depends on where you live of course. Buy a run down piece of crap that costs almost nothing and rent it section 8. Section 8 renters are hard on a property but if its cheap (presumably this means run down as well) then it does not matter. If you decide to do this let me know and I'll give you tips.

Earnings, there are statistically predictable price fluctuations in the days around a company's earnings report release. For your account you would want to trade real small because you will still run a chance of a big loss. Remember as well, you are trading options so implied volatility is important. Check out ivolatility,com and google "how to trade earnings" or something like that. Win or loose, let me know how it works out.

 

[mushinseeker]

Here is my advise... get books from your library from these authors-Lawrence Mcmillan, Sheldon Natenburg. Visit sites like thinkorswim, options industry council, google "options trading" and learn from the webinars,etc. Open a thinkorswim account and use their on-demand to put on paper positions and watch the positions mature tick by tick...read the John Bender chapter Jack Schwager's Stock Market wizards. Wherever your journey takes you, don't be seduced by high win rate strats (check out their risk of ruin) . All these paid services advertise it.. they work great until they don't then it bye bye trading account- google tastytrade/karen supertrader/vic neiderhoffer. They have their place in a good options trader's arsenal (just not with VIX at 12)

 

[bookish]

Here is my advise... get books from your library from these authors-Lawrence Mcmillan, Sheldon Natenburg. Visit sites like thinkorswim, options industry council, google "options trading" and learn from the webinars,etc. Open a thinkorswim account and use their on-demand to put on paper positions and watch the positions mature tick by tick...read the John Bender chapter Jack Schwager's Stock Market wizards. Wherever your journey takes you, don't be seduced by high win rate strats (check out their risk of ruin) . All these paid services advertise it.. they work great until they don't then it bye bye trading account- google tastytrade/karen supertrader/vic neiderhoffer. They have their place in a good options trader's arsenal (just not with VIX at 12)

How does thinkorswim paper trading handle the bid/ask? How is the actual fill? Do they get you toward the middle of the bid / ask usually or are they always at the extremes?

 

[mushinseeker]

somewhat quirky.. I simulate my trades by buying/selling on the midpoint and occasionally lifting the prices. I found that on some illiquid strikes , I could fire off mkt orders and nothing executes. I think their simulator checks to see if there are any trades around those prices and will give you a "fill" if there were trades there but no trades if there were no real trades in that strike. I've actually had unexecuted market orders on some deep strikes simply bec there were no trades there at that time... I even went above the ask... nothing...still inspite of that quirk.. still very useful.