Penny Stocks vs. Options: Who Wins? // Options trading strategies, Penny stock trading basics 101 welcome to looking at the markets with David Moadel just wanted to make another
quick point about options vs penny stocks if you have a small account i
know that penny stocks might be very tempting to buy because of their low
price but options can also have a low price and just the bid-ask spread alone
is generally speaking more attractive on options than they are for penny stocks
especially if its options on blue chip mega-cap very very popular stocks
excuse me so let's take a look at some penny stocks i consider anything under
five dollars to be a penny stock and here's one example re ed and you know
there's a three percent spread here
I'm sorry for three percent three-cent Threepenny spread here between the bid
and the ask which might not sound like a lot but on such a low price stock that
that's that could be very big
ok
let's take a look at a few other examples
BTW is another one and again you've got a 33 cents but i'm such a low price
stock three cents is is a is a large amount it really is ok so yeah you know
and and if you that what that means is that if you were to purchase this penny
stock right now if you were just to put in a market order you would pay a dollar
eighty pressure that's the ask sighs and then if you were to turn around and sell
it right now with a market order you would only get a dollar seventy seven
per share and so you would be losing three three pennies per share just right
at the outset and so that's that's not a good way to start off and there's a
popular one phot which is grown life and this is this is merrill edge which is
merrill lynch's platform and you know Mara ledges is connected with merrill
lynch and bank of america so this is not some rinky-dink little broker this is a
major major broker
and you can't even find a better ask size on this penny stock and so that's
not a good sign
you're not going to see that with options is as much especially if it's a
blue-chip mega-cap stock a really well-known brand name
yeah you're not going to see this as much just no bid and no ask sighs
unlisted that means who knows what you're going to pay and what you're
going to get until you place the order and that's not good
you're going to get a lot of slippage just from the the bit and they asked the
the spread their alright and so I yeah i'm going to turn off the video I'm
going to turn it back on and we're going to look at the bid-ask spread for
options next
alright we're back and let's take a look at some option did ask spreads here and
if we look at some very well-known names such as Apple got a good feeling we're
going to get some tight super-tight bid-ask spreads here
alright let's try a call option on apple and look at that one penny
alright so if you were to and and you know that a penny for an option that's
that's really not that bad and and you got nice you have nice volume here and a
pity a penny did ask for spread all right let's try
that's a call let's try to put just to see see how that looks
and we'll try i don't know 106 . let's see what happens
one patty ok so that's just an example you can also look at ETFs will take a
look at the ques
we're looking for good liquidity here and we certainly get that
with the Q's so we'll look at and I don't know out-of-the-money slightly a
call option one penny difference not so bad
ok and let's take a look at I don't know Twitter whatever
alright these are just examples
and we'll look at let's see we'll look at a call option a little bit
out-of-the-money not much one penny
alright and so these are just examples so and these are very low cost
I mean you can buy Twitter call option here for what forty forty dollars okay
and i think most people can afford that
alright so I hope this was illustrative of how you could really get hurt with
the bid-ask spread for penny stocks and with options if you you know you shop
around you check the check the spread their check the volume make sure you're
using well-known names blue blue chip stocks may cap stocks and ETFs and the
bid-ask spread won't won't hurt you so much you can even get it really as tight
as you can
penny differences is great not too bad at all alright so I hope this was
helpful and if you need help putting together a trading plan if you have
questions about stocks options finance in general contact me please my name is
David Modell and you can contact me at David Modell @ gmail.com if you like
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