How to Scan for Credit Spreads

[Music] [Music] I want to get into our feature here today theta Thursday you know one question we get quite often is how do we find candidates to trade credit spreads on Matt and you know with the market where it is we could look for a bull put or a bear call or any kind of thing but what I want you to do is stay high level for about ten minutes and kind of just talk about scanning principles for credit spreads you know in terms of Christ Fair it's a lot of traders who trade credit spreads you know after about six months eight months or whatnot they have a list of stocks that they trade credits on right and that list is always going to be the the same once the Google's the Amazons of the world those those hot you know Netflix and you know those types of companies high-dollar companies we know they're very liquid we know that we can get good credits on them and so on and so forth but you know for for new traders and and and for you know veteran traders like learning how to scan for credits can be very very helpful in terms of finding something that you can trade right there fin this is my favorite scanning is my favorite scanning tool it's also a complicated scanning tool because you have to build the scan yourself but it is one of my favorite ones out there first and foremost whenever I'm scanning whether it's for credits debits swing trades cover calls whatever it is whatever I'm scanning for I always start with the descriptive tab here and I always go plus mid-cap stocks I want to make sure that we got you know plus mid cap if I'm scanning for a specific you know dollar mark I might go plus large cap stocks to kick out the small in the mid cap stocks for for type of credit spread so I'm gonna I'm gonna stay on the plus mid just to see how many stocks I can get now as you click on these infinite vids ladies and gentlemen you'll notice over here that it's telling you the total stocks that fit that criteria so far and obviously our goal is to not look at a hundred 1785 stocks I want to get that number down to say some around twenty thirty maybe fifty just to kind of get that number down as much as I can so next I want to go I always go average volume if I'm scanning for a stock trade Tim I put average volume above 500,000 if I'm going for some type of option trait though whether it's a directional option or whether it is a credit spread I'm always going over a million dollars not million dollars a million shares traded and the reason is it is very simple liquidity in the options market the percentage of companies of low dollar companies that is just less than the percentage of higher dollar companies with liquid options on them so if I have you know over a million shares traded the chances are I'm gonna have a little bit more liquidity in those types of options than it would on a stock that trades you know say 500,000 shares a day or 700,000 shares a day and that is important when you're talking about trading for four options and then I go over obviously I want it to be optional I'm scanning for credit spreads here and then I want the price and this is very important because you can do credit spreads on $20 stocks you can do credit spreads on $50 stocks you can do about $100 stocks personally I'd like higher dollar stocks because when I find a stock that is priced under $50 I usually the first thing in my mind doesn't say hey let me go do a bull put spread again you can there's nothing wrong with that I'm not trying to say that but for my personal preference I like those stocks in naked puts more than I do poll puts I like those stocks in covered calls and the boomerang trade more than I do say in terms of just a just a standard bull put or a standard bear call or the combination of the iron condor so typically I go to over $70 and as you can see we got two hundred and sixty-five candidates right there now I skip the fundamental tab if I'm looking for a trade less than 30 days I'm not gonna look at a p/e ratio I'm not gonna look at earnings per share growth I'm not looking at PEG ratio so I'm not looking at forward p/e ratios those are only for longer-term investments type type scenarios I don't care about the fundamental nature of a company that I'm only going to be in a trade less than 30 days and so I'm gonna go over to the technical tab here and the first thing I always do is I come down to to the beta that's all right I know I need some volatility here right I know I know I can't get a good credit on on a stock that has 20% implied volatility on there options right I need a in fact if you look at it guys if if you have 30% implied volatility on on an option that is typically right around 2% on a covered call typically you ever taken a couple percentage points but that's process practically nothing on a credit fret nothing on it I mean you can't even get the 10% of the spread typically so what I like to look at is I'd like to say okay give me something that trades over a 1 beta here and the reason I want something that trades over a 1 beta is that tells me that these stocks they move faster than the market does and if they move faster than the market does they are typically more volatile than the market does with implied volatility and a lot of traders will actually say give me you know over 1.5 now I'm not gonna do that though until I start with over 1 until I start to see other filters come in here so first thing I'm gonna say okay we're are we looking at bear calls or bull puts because what I would click on would be different what do you want to work with bear calls I would say based on today well here's the here's the issue most traders are probably heavily weighted to the Bulls side because that's traditional trading beta and I had I saw a couple questions where how do I get my delta down one thing you can do is naturally abort calls I think bear calls because most people need training on that more I'd say I well that's a good point in but and just to reiterate what you said selling call options against the stocks you want to just your delta down is a very very simple way to do that you know that bear calls is another simple way to do that you're absolutely right so let's go with the let's go with the bear call here so what I'm gonna do is I'm say okay give me a stock that is you know below say it's 50-day moving average right but give me a stock that's above its 20-day moving average and I'll show ya and what you'll see here is on Illuminata you have a bearish downtrend into a bearish retracement and so if I go back and I forgot that what their symbol was very quickly here I lmn okay so I'm looking at the chart bearish down trend bearish continuation pattern this is a inverted cup and handle tip setting at resistance slowing momentum was obvious resistance here at $300 that is a prime candidate and we don't have earnings for pulse turning sir that is a prime candidate to come out and say you have let me get a decent credit here with 31 percent volatility to my it maybe it's not gonna be great it'll be the timing great but you're not gonna get any great bear call spread credit right now probably not mark markets up but 18 percent since the December 24th one-day bear market right no you're not gonna get a wonderful bear call spread in that environment no and I'm definitely not doing a covered stock here so let me go down to that 16 Delta cell vertical and you can get about a buck on 10 bucks so look on 10 bucks 10 percent 10 percent on 9 so depending on how you want to categorize it if you want to categorize your are away ROI based on you know spread it's a 10 percent ROI if you do it based on margin buying power that's about a 12 percent ROI mm-hmm that's a good trade any FedEx real quick see what you just did was scanning obviously is very valuable or we could just take a stock from one of the reports as well you know we've already bird dogged all this stuff for you guys there retracement over time now here's that here's the thing about this you would not trade this directionally because it's not triggered yet but can you trade a bear call without a trigger moment of course you can yeah listen Delta systems are different than theta systems I don't need to wait for a 10% a 10% over the ATR below the low of the day to sell credit spread that's 16 Delta so no but another way to find in that you know fin vis I mean it just worked I mean running the scan I mean we found the one that was really really really good there but another way people find you know bear calls specifically is come to the options report Tim right they come to the options report and they say okay here's my bowl list there's my bear list a lot of times guys we put high dollar stocks on option reports right so here's here's a BBV Costco FDX the IL MN was on the report Amazon tt-take - and so when you're looking at this Tim and I'm saying okay on a PB v here darish downtrend bears your tradesmen yeah you can sell credit on that Costco I wouldn't sell a credit on that until we saw a break of 208 weakness but it's showing weakness FDX there's Illuminata Amazon take 2 so that's that's another one take two it would be a good bear call Canada right here - I think take two Amazon they both fit by the way you calling Illumina Illuminata it just makes me Illuminati yeah all right forever no no no okay no but but again in using fin vis to scan it is a very helpful way to find things but but you have to learn how to use their tools and and but the best way is just use the options report barracks no down yeah yeah you [Music]

Channel: Tackle Trading

Views: 29,327

Keywords: option strategies, options trader, options trading, credit spreads, how to trade credit spreads, options trading for beginners, credit spreads for income, stock trading 101, options strategies, option trading strategies, stock trading for dummies

Id: r-9EsJ7XEWM

Length: 10min 51sec (651 seconds)

Published: Tue Jun 11 2019