Issue 14: Trading Options on Low Priced Stocks is Strongly Discouraged - Masters in Trading Digest

Trading Options on Low Priced Stocks is Strongly Discouraged

Welcome to Issue 014 of Masters in Trading Digest.

In today’s FREE MIT Digest, we explain the difficulty in trading options on lower-priced stocks.  Something I rarely do.

Enjoy the education, and have fun with today’s MIT Digest.

Good investing,

Jonathan

Trading Options On Low-Priced Stocks

This article titled:  Understanding Stock Prices and Values from Investopedia explains the basics of What Price Tells You

  • Stock Price vs Stock Value
  • When Price Matters
  • What Price Tells You
  • Market Cap and Share Price
  • Factors Affecting Price and Value

Read Full Article

This morning I started my search for new trading ideas for the week of January 17th, beginning with checking the latest updates from MITs Wall Street Wiretapper, our unusual options activity scanner powered by a Neural Network.

The first scan I looked at was the “Top 10 Stocks within $2-$5 Over the Past 10 Days”.

This scan tells me which names between $2 and $5 have seen the most “unusual options activity” over the past 10 trading days.  Additionally, this scan tells us which names have the highest probability of outperforming their Implied Volatility.  

This is a scan I rarely use because it’s difficult to trade options on stocks priced < $10.

Here’s why – let’s look at the options tree in BBIG below.

BBIG last trade: $4.07.
BBIG Strike prices every $1 (the strike prices are more than 20% apart).

If BBIG (hypothetically) did a one-for-ten reverse split, the stock would trade at $40.70.  ($4.07*10=$40.70).   The option strikes would then be $40, $50, and $60.  

Are those options you would want to trade?  If the answer is no, you don’t want to trade $4, $5, and $6 strikes either.

This is the reason we rarely trade or share trades for stocks priced less than $10.

Let’s look at TWTR
TWTR last trade $38.44
TWTR strike prices every $1

The strikes on TWTR options are a lot more desirable for options traders

With that being said, let’s still look at BBIG using our High-Value Target chart.

HEARD ON OUR YOUTUBE CHANNEL

The Mother of All Buys Signals

Vix Term Structure – Watch Here

Includes back-tested data

Learn more about the VIX Trading System from Masters in Trading

FINAL THOUGHTS

WHAT TO EXPECT IN THE NEXT MIT DIGEST

The next issue of the MIT Digest will be released Wednesday, January 19th, 2022.

Wednesday we will host our Futures 101 Masterclass.  This will be the first of 4 Futures classes. 

Learn about Futures in this past Saturday's Webinar.

Keep your feedback coming into support@mastersintrading.com.  We’re excited to share your feedback along with fantastic suggestions for upcoming issues.

Until then, trade smart and always manage your tail-risk.

Thanks for reading,
Jonathan Rose

 

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Masters in Trading Digest - Issue 14

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