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Wide spreads / Volatile stocks with
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Wide spreads / Volatile stocks with

  #1 (permalink)
Membership Temporarily Revoked
Memphis,TN
 
Futures Experience: Advanced
Platform: ThinkorSwim,FXCM, Ensign Software
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Posts: 232 since Sep 2010
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Wide spreads / Volatile stocks with

high Implied Volatility and or high IV Rank ( TorS )

With scanning through tons of charts over this past weekend, I saw some great setups via the charts
The problem is threefold...

1. Some of these stocks were in the upper $100+ range, of which I can't afford to buy these stocks outright
2. The spreads between the bid x ask of these stocks options , was Wide.... in the .50 cent - $4 range
3. The implied volatility on some of them, was in the 50% + range for the ATM strikes


So given the 3 above scenarios surrounding stocks that fall into one or all of these situations,
I still want to be able to trade " play " them, but use Options instead of buying the stock outright

It looks as if doing Vertical spreads would be the safest / wisest way to trade these, especially for Directional trades on these stocks

Maybe even do Ratio spreads on them ?

Just wanted to ask other traders on here, who trade Options,
how they would trade stocks with wide spreads ( this alone cancels out buying just regular long Calls and Puts )
and also , those who have such high IV ( biotech, pharmaceutical ) type stocks, that have inflated option premiums,
etc...

Thanks for any input and help on the topic at hand
and Happy New Years

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  #2 (permalink)
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  #3 (permalink)
Trading Apprentice
TPE, TW
 
Futures Experience: Beginner
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Favorite Futures: gbpusd, vix
 
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mdsvtr View Post
high Implied Volatility and or high IV Rank ( TorS )

With scanning through tons of charts over this past weekend, I saw some great setups via the charts
The problem is threefold...

1. Some of these stocks were in the upper $100+ range, of which I can't afford to buy these stocks outright
2. The spreads between the bid x ask of these stocks options , was Wide.... in the .50 cent - $4 range
3. The implied volatility on some of them, was in the 50% + range for the ATM strikes


So given the 3 above scenarios surrounding stocks that fall into one or all of these situations,
I still want to be able to trade " play " them, but use Options instead of buying the stock outright

It looks as if doing Vertical spreads would be the safest / wisest way to trade these, especially for Directional trades on these stocks

Maybe even do Ratio spreads on them ?

Just wanted to ask other traders on here, who trade Options,
how they would trade stocks with wide spreads ( this alone cancels out buying just regular long Calls and Puts )
and also , those who have such high IV ( biotech, pharmaceutical ) type stocks, that have inflated option premiums,
etc...

Thanks for any input and help on the topic at hand
and Happy New Years

Assuming the options are worth a few dollars, a spread of $0.50+ is not good, but justifiable if you have strong conviction on the setup. Anything more than a $1 spread I would avoid.

I don't quite get this part: "how they would trade stocks with wide spreads ( this alone cancels out buying just regular long Calls and Puts )"

If it was up to me and I had to play options with wide spreads, I would buy regular calls/puts instead of doing spreads. You get ripped off for every contract you trade from wide spreads. So would you rather be ripped off for just 1 contract worth of regular call option OR 2 contracts worth for a vertical bull ? The more "legs"/contracts you trade, the more you are disadvantaged. Spreads trades more legs/contracts than regular.

IV depends on how long you expect to be in the trade. If only a few days being in regular calls/puts are fine. If you plan to be in it for a few weeks at least then you should just play the stocks. Use margin. Don't fight an uphill battle against market makers in a thinly traded options market, there are enough opportunities out there.

Alternative is to find stocks in same sector with similar setup with better options liquidity.

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  #4 (permalink)
Elite Member
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Futures Experience: Intermediate
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mdsvtr View Post
high Implied Volatility and or high IV Rank ( TorS )

With scanning through tons of charts over this past weekend, I saw some great setups via the charts
The problem is threefold...

1. Some of these stocks were in the upper $100+ range, of which I can't afford to buy these stocks outright
2. The spreads between the bid x ask of these stocks options , was Wide.... in the .50 cent - $4 range
3. The implied volatility on some of them, was in the 50% + range for the ATM strikes


So given the 3 above scenarios surrounding stocks that fall into one or all of these situations,
I still want to be able to trade " play " them, but use Options instead of buying the stock outright

It looks as if doing Vertical spreads would be the safest / wisest way to trade these, especially for Directional trades on these stocks

Maybe even do Ratio spreads on them ?

Just wanted to ask other traders on here, who trade Options,
how they would trade stocks with wide spreads ( this alone cancels out buying just regular long Calls and Puts )
and also , those who have such high IV ( biotech, pharmaceutical ) type stocks, that have inflated option premiums,
etc...

Thanks for any input and help on the topic at hand
and Happy New Years

If your looking to "play", vertical spreads are a solid way to start, specifically Credit Spreads, based on your High IV search criteria. They will allow for defined risk and use little buying power. As for Ratio Spreads, you will need to check your options permissions as by definition, they require an uncovered option and typically additional buying power.

Your best bet is highly liquid stocks as they typically have the most liquid options. Just ran a scan for High IV stocks, check out... MCD, XLU, TIF.

Personally, I always enter my orders a Mid price or better and let them sit. I don't chase trying to get filled, if I don't get in there is always tomorrow or another position for my money.

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  #5 (permalink)
Membership Temporarily Revoked
Memphis,TN
 
Futures Experience: Advanced
Platform: ThinkorSwim,FXCM, Ensign Software
Broker/Data: ThinkorSwim, FXCM
Favorite Futures: Futures, Forex, Options
 
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Posts: 232 since Sep 2010
Thanks: 853 given, 28 received

Thanks for the replies and detailed explanation behind the how and why to trade stocks that fall into the topic at hand

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