Options trading can be a complex and risky investment strategy that requires a certain level of expertise. It is not recommended for novice investors, but rather for seasoned traders who are looking to diversify their portfolios and potentially generate higher returns. Options trading offers a wide range of possibilities and can be used to hedge against risk, limit losses, or take calculated risks in pursuit of significant gains.
Despite the potential benefits of options trading, it is important to understand the risks involved and to have a solid understanding of the underlying securities. Successful options trading requires careful analysis, strategic planning, and a willingness to accept the potential for losses. With the right approach, however, options trading can be a valuable tool for experienced investors looking to enhance their investment strategies and achieve their financial goals.
Best Options Trading Stocks at a Glance
The options trading market is vast and complex, with many different stocks to choose from. However, some stocks are more heavily traded than others, and understanding why can help you make more informed investment decisions.
According to data sourced from Market Chameleon, the following stocks have experienced some of the highest options trading volume over the past 90 days:
| Company | 90-Day Average Options Volume | Segment |
|---|---|---|
| SPDR S&P 500 ETF Trust (SPY) | 8,250,026 | Tracks the S&P 500 |
| Invesco QQQ Trust (QQQ) | 3,354,395 | Tracks the Nasdaq-100 |
| Tesla (TSLA) | 2,302,658 | Electric vehicles |
| Nvidia (NVDA) | 1,107,127 | Semiconductors |
| Apple (AAPL) | 1,051,079 | Consumer electronics and software |
| iShares Russell 2000 ETF (IWM) | 965,736 | Tracks the Russell 2000 |
| Amazon.com (AMZN) | 743,472 | Internet retail |
| Advanced Micro Devices (AMD) | 699,675 | Semiconductors |
| AMC Entertainment Holdings (AMC) | 495,052 | Communication services and entertainment |
| Meta Platforms (META) | 428,872 | Communication services, internet content and information |
| Microsoft (MSFT) | 443,664 | Technology, software and infrastructure |
| Palantir Technologies (PLTR) | 418,481 | Technology, software and infrastructure |
It’s important to note that the best options trading stocks will vary depending on your individual investment strategy. However, these heavily traded stocks are popular for a reason, and can provide valuable insight into the market.
Investors can use either SPY or QQQ to position for upside or downside in the broader market. As for individual stocks, Apple and Tesla are typically on the list because of their size and popularity. Others enter and exit based on trading activity and events.
It’s important to do your own research and analysis before making any investment decisions. However, understanding the stocks that are experiencing high options trading volume can provide valuable insight into the market and help inform your investment strategy.
Which Stocks Are Best for Options Trading?
Options trading can be a lucrative way to invest, but it can also be risky. Experienced traders often look for stocks with high trading volume and volatility to maximize their profits. Here are some of the top stocks for options trading based on their trading volume over the past 90 days:
1. SPDR S&P 500 ETF Trust (SPY)
The SPDR S&P 500 ETF Trust is the most heavily traded stock on this list, and for good reason. This exchange-traded fund tracks the S&P 500 index, which represents the 500 largest publicly traded U.S. companies. Many options traders like to bet on the future performance of the stock market as a whole, so the SPY is a popular choice.
2. Invesco QQQ Trust (QQQ)
The Invesco QQQ Trust is heavily weighted toward tech stocks, which tend to be more volatile than the market as a whole. This exchange-traded fund tracks the nonfinancial stocks on the Nasdaq-100, making it a good choice for traders who want to focus on the tech sector.
3. Tesla (TSLA)
Tesla has been trading with high levels of implied volatility, which means that options traders expect major price swings in one direction or the other in the near future. Part of the reason for all of that implied volatility might be due to Elon Musk, its unpredictable and controversial leader.
4. Nvidia (NVDA)
Nvidia experienced enormous price swings last year as its primary technology fell in the crosshairs of a trade war with China. The stock’s 12-month price target is about 38% higher than the current price, but an increasing number of analysts recommend holding the stock, which suggests they anticipate that more volatility lies ahead.
5. Apple (AAPL)
Despite its size and stability, Apple is a popular choice among options traders due to its trading volume and volatility. With a market cap of more than $2.8 trillion, Apple is the biggest company in the U.S.
6. iShares Russell 2000 ETF (IWM)
The iShares Russell 2000 ETF tracks the Russell 2000 index, which is known for its high volatility. Unlike large-cap stocks, small-cap stocks are more likely to experience significant price swings, making them a good choice for options traders.
7. Amazon.com (AMZN)
Amazon is one of the largest publicly traded companies in the world, but its stock fell precipitously in the second half of last year. It since has bounced back, but some analysts say it’s overvalued based on projected earnings growth.
8. Advanced Micro Devices (AMD)
Advanced Micro Devices has been in the news lately due to government restrictions on exporting its most advanced and sophisticated chips to China. This has sparked wild volatility, making AMD a popular choice among options traders.
9. AMC Entertainment Holdings (AMC)
AMC has become a perennial meme stock, with its stock price swinging wildly in response to social media buzz. While the stock is trading near its 52-week low, some analysts rate it a “hold.”
10. Meta Platforms (META)
Meta Platforms (formerly Facebook) has seen a surge in its stock price due to user growth, making it a popular choice among options traders. However, the company’s metaverse investments haven’t yet paid off, and economic challenges have dampened advertising revenues.
Is Options Trading Better Than Stocks?
Options are just another asset class that has a place in many investor portfolios. They derive their value from an underlying asset, which can be just about anything, including stocks, commodities, bonds, and currency. Different investors use options for different reasons, like to hedge against market downturns, for income, or as a speculative bet made in pursuit of large gains. However, options trading can be risky, so it’s important to do your research and understand the risks before investing.
What Is Options Trading?
Options trading is a type of investment strategy that involves buying and selling contracts that give the owner the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a certain time frame. The underlying asset can be a stock, commodity, or any other financial instrument.
Options trading can be a great way to make money in the stock market, but it can also be risky. It is important to have a solid understanding of the market and the underlying asset before making any trades.
Some of the benefits of options trading include:
- Flexibility: Options can be used in a variety of ways to achieve different investment goals, such as generating income, hedging against risk, or speculating on market movements.
- Leverage: Options allow traders to control a large amount of stock for a fraction of the cost of buying shares outright.
- Limited risk: When buying options, the most you can lose is the premium paid for the contract.
However, options trading also comes with some drawbacks, including:
- Complexity: Options trading can be difficult to understand, especially for beginners.
- Risk: Options trading can be risky, and traders can lose money if they don’t have a solid understanding of the market and the underlying asset.
- Time-sensitive: Options contracts have expiration dates, which means that traders need to be aware of the time frame in which they are trading.
Overall, options trading can be a powerful tool for investors who are willing to take on some risk in exchange for potentially high returns. However, it is important to approach options trading with caution and to have a solid understanding of the market and the underlying asset before making any trades.
Options Trading For Beginners
Options trading can be a complex and risky investment strategy that requires a good understanding of the market and its dynamics. However, with the right knowledge and tools, beginners can also participate in options trading and potentially earn profits.
Here are some key points to keep in mind when starting with options trading:
- Understand the basics: Options are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price and date. There are two types of options: calls, which give the buyer the right to buy the asset, and puts, which give the buyer the right to sell the asset.
- Choose the right stocks: When trading options, it is important to choose the right stocks that have good liquidity and volatility. Liquidity refers to how easily the stock can be bought and sold, while volatility refers to the magnitude of price movements.
- Develop a strategy: Options trading requires a well-defined strategy that takes into account the investor’s risk tolerance, investment goals, and market conditions. There are various options trading strategies, including covered calls, protective puts, and straddles.
- Practice with paper trading: Before investing real money in options trading, beginners can practice with paper trading, which involves simulating trades without actually buying or selling stocks. This can help them gain experience and confidence in their trading skills.
It is important to note that options trading involves risks and is not suitable for everyone. Investors should consult with a financial advisor and do their own research before making any investment decisions.
Final Take
Options trading is a complex and risky investment strategy, but it can be profitable for those who conduct thorough research and develop a solid plan. Before diving into options trading, investors should spend time learning about the different strategies and risks involved. It is also recommended to sign up for a brokerage account that offers a trading simulator to test strategies before investing real money.
Investors should keep in mind that data is subject to change, and they should stay up-to-date with market trends and news. Overall, options trading can be a valuable addition to an investor’s portfolio, but it requires discipline, patience, and a willingness to learn.
