Hey everyone, this it Kirk here again at OptionAlpha.com and in this video we're going to go through
my process for scanning for the best stocks and setups to trade.
First, I'm going to assume that before scanning, you already have a good idea of your portfolio
balance, or your beta weight, from previous video tutorials here at Option Alpha.
In addition to that, I'll obviously assume that you've pre-screened your watch list for
great liquidity because you want to minimize that slippage that can come with trading options
and stocks with really wide [inaudible 00:00:32] spreads.
Because the reality is that scanning for the best setups is actually very easy once you
know exactly what you're looking for.
It's all about finding the low hanging fruit.
Just to go back a slide here a second, once you know what your portfolio balance is, meaning
that if your portfolio is a little bullish or bearish, or maybe it's exactly neutral,
then it's a lot easier to go looking for new trades, because now you've got an idea of
what can help you get more balance or more neutrality in your portfolio overall.
Here are two things to keep in mind, and again this all revolves around low hanging fruit.
We'll actually do some scanning right now on this video at the time that we're recording
this.
Two things you want to keep in mind are number one, high implied volatility is our edge,
so if you're going to focus on anything that you do as far as scanning, something like
high implied volatility has to be at the centerpoint of how you quickly find trades.
In my opinion, when I go looking for trades every day, the first thing that I'm looking
for is what stocks or ETFs have high implied volatility that create an opportunity for
me to get on another trade.
Again, that's because that's our edge as options traders.
Number two is that we have to keep in mind the direction relative to portfolio needs,
which means that at the end of the day, as we've proved before in videos, you can make
a trade in any direction with options and have the same probability of success and have
relatively the same premium or profit potential based on risk in any direction.
Bullish, bearish, or neutral.
What you have to keep in mind is that if you're going to make a directional trade, you have
to make sure that it fits well into your overall portfolio.
It's really asking yourself the question ahead of time, "If I already have let's say 10 bullish
trades, do I need to go looking for another bullish trade?
Or can I go out looking for a bearish trade?"
Something like that.
That's what you need to start asking yourself.
I could keep those two things in mind.
What we've done here at Option Alpha is made the entire process for scanning for trades
insanely simple and hopefully given you the tools that save time and help you make smarter
decisions a lot quicker.
Inside of our watch list we're got a lot of different things that we pre-built in based
on the feedback from hundreds and thousands of members on what would help them scan for
trades easier and figure out what types of strategies to use.
When I go in here every single day, again like I said, one of the things that you can
do is you can automatically scan and look by high implied volatility.
You can go right into the watch list and sort the entire list and filter out anything that
doesn't have high implied volatility.
Again for me this is the first thing that I do is I want to see which stocks and options
have the highest implied volatility.
Once I filter out just those with implied volatility over the 50th rank or percentile,
then I can sort that list highest implied volatility to lowest.
Now I can see here on this list that EWZ could be a possible trading opportunity for me,
or PBR, or MON, etc, etc, etc. now I can go in here and say [inaudible 00:03:55] these
are the things I need to be focusing on because they have the highest implied volatility,
the highest opportunity for me to make money.
One of the things that we also pre-built in here is the ability to then look for the best
option strategies, or the best option strategies are then suggested based on implied volatility.
You can see here for EWZ that based on this implied volatility being in the 85th rank,
that we can basically look to trade straddles, strangles, and iron butterflies.
If we were looking at something maybe a little bit different like we're looking at, let's
say Yahoo, which is implied volatility in the 63rd rank.
You can see that the system automatically recognizes that, and suggests that you should
trade either credit spreads, butterflies or iron condors in this case.
Again, very easy for you to come in here every single day and basically scan through this
watch list in three clicks or less and find everything that you need to find as far as
potential high implied volatility trades.
Let's say that you really don't care about implied volatility for some reason, so we're
going to take off the high implied volatility, we're going to go and actually filter on just
ETFs.
Now we're going to take out all possible stocks, all possible earnings out there, we're just
going to look at only ETFs.
Another way that you can look for possible trading candidates is look for stocks that
have made a really high percentage move in the last day.
That's another way that you can look for possible candidates is things that have moved higher
or moved lower.
Again, back to the slides that we had before asking yourself the direction relative to
portfolio needs.
If your portfolio needs to find a bearish trade, it might be helpful to come in here
and see which ETFs are moving down really hard right now.
Which ETFs might continue to move down in the future?
You might come in here and look and see that XLF has moved down about 85 basis points in
the last day, so that might be a good candidate for you to then continue to trade bearish.
Again, based on implied volatility rank, the system automatically recognizes that if you're
going to trade XLF, that you should be doing it with a calendar spread or ratio spread
or a debit spread.
Again, it's very easy intuitive way for you to come in here and start scanning for trades.
There's a million ways that you can obviously scan for trades.
We're not saying that this is the only way to do it, but again, it doesn't matter which
direction you end up trading something as long as your portfolio's overall neutral,
and in our opinion I think you should be trading a lot more short premium strategies, because
that's where the numbers are, that's where the math is, and that's why we can constantly
basically give you these tools here at Option Alpha to quickly scan and filter for the trades
and ETFs and stocks that basically fit best for your portfolio.
Once you've found some candidates to possibly trade, it's time to select which strategy
works best for that IV rank and the directional assumption which we'll cover in the next set
of videos.
In fact, we've already kind of covered it here but we'll go a little bit deeper into
strategy selection so that you understand exactly why our system automatically suggests
the best strategies based on different implied volatility rank levels.
Again, thank you so much for watching this video, if you have any comments, questions
or feedback, or if you love this video and want to share it online, please help us spread
the word about what we're trying to do here at Option Alpha, and until next time, happy
trading.