Stocks & Commodities V. 31:5 (61): Explore Your Options by Tom Gentile

Stocks & Commodities V. 31:5 (61): Explore Your Options by Tom Gentile
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Explore Your Options by Tom Gentile

PUT OR CALL: WHICH HAS THE MOST LIQUIDITY OF ALL?

Recently, a question came out of left field: What are the best options to buy or sell for a daytrader? In the world of option trading, there are the few who wish to daytrade options. Trading options is a skill, but daytrading them requires a different skill set. My first inclination was to answer “Don’t do it,” but in this industry, “don’t” and “can’t” are not in the trading vocabulary.

There are roughly 4,000 indexes, exchange traded funds (ETFs), and stocks that are optionable. Not all options are created equal. To answer the question, the first thing I did was head over to the CBOE (www.cboe.com) to look for an answer. There are options on familiar products such as index options and equity options, but that’s only the beginning. There are options on exchange traded products, and credit swaps, binary products, and even options on volatility. Chances are that if you’re an option trader and you don’t know what it is, you shouldn’t be trading it, let alone daytrading it.

Then there are index and equity options. I didn’t have to look far for index options. The information at the CBOE showed me that of the top 10 index options traded in 2007, the Standard & Poor’s 500 (SPX) traded more volume than the others combined. When I looked at the Standard & Poor’s SPDR ETF, it trades very high volume as well.




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