Thread by @AdamSliverTrade

🎯 FIND YOUR OWN OPTIONS PLAYS 🎯
🔥 A day-trading preparation guide 🔥

1. Selecting Stocks
2. Identify Key Levels #LevelsDontLie
3. Strikes
4. Assessing Premiums

These four steps should set options traders up for self-sustainable success. 📈

1. Selecting Stocks

The first question I always ask: "Are other people trading this ticker?" Volume is crucial for options. If the underlying stock is not moving, or is very choppy, how can you expect the options to perform well?

Stocks that average at least a few million in volume should be your starting point.

Next, gauge the sentiment. Are people on Twitter talking about it? Has there been recent news? Is there bearish or bullish flow? Use Twitter as a resource.

Simply type the ticker into the search bar on Twitter and scan through some tweets. Seems silly, but this can give you a good idea of sentiment and whether moves are expected on a certain stock or not.

@DeItaone - News
@unusual_whales - Flow

Top large-cap gainers/losers will often be trending. Keep an eye on those. The volatility is great for options trading. Additionally, wait a couple days and see if the stock takes a break after a big move. Some consolidation can lead to a next leg up.

Keep an eye on what sectors are hot. Use this link for sector guidance:

sectorspdr.com/sectorspdr/too…

You can also see top gainers/losers within each sector. You can play these top plays or play a sympathy in the same sector that may be lagging the leader.

For example, $F and $GM have been running together fairly consistently on their recent breakouts. If $F has a much better day on Monday than $GM, watch $GM on Tuesday to outperform and catch up to $F.

2. Identify Key Levels

We all know that levels don't lie. If you're unfamiliar with identifying support/resistance, I would watch some Youtube videos on the topic.

You want to find areas over time where the candles and wicks match up. The more times a wick stops at a certain...

price level, the stronger that level will be. Psychological areas also act as strong levels (round dollars, .50, etc.)

The goal here is to pick levels that once broken, turn the odds in your favor and give you an edge. Key levels can lead to huge breakouts or breakdowns.

I look at the Daily, 1HR, then 15min charts if I need to be more precise. These levels have to be precise enough to where they will warrant a big move, but realistic enough they can trigger and produce follow-through all in the same day.

When looking at the charts, there is no specific amount of days I look at. Sometimes I use previous HOD or LOD, and sometimes I have to scroll back a week.

More recent levels are the most influential.
More level tests over time means stronger level = bigger break

Take into account how much the ticker moves on a "good day".

If $F moves .50 on a good day, my triggers will need to be ~.15 from closing price the previous day for me to make a good profit.

If $UPST moves $20 on a good day and $40 on a great day then I have more freedom.

$UPST would allow me to find some significant levels +/- $5 from previous close that could likely still lead to a $10 move and provide plenty of profit opportunity.

3. Strikes

Now that you've found some levels, ask yourself what a realistic move looks like. If I think that $COIN will breakout over $300, what is a reasonable target?

Over the last few months, $COIN has moved ~$10 on good days and ~$15-20 on great days. "Move" can mean + or -

$300 is a big level both technically and psychologically! I would think that a $10 move is likely if not guaranteed in the coming days/week.

Is it reasonable for $COIN to hit $320 in this case? I would argue yes. (Given that you are not playing 0 days to exp.)

When it comes to picking strikes, my preference is to go as OTM as possible while still being reasonable. Would I take 330c on a Wednesday break of 300? Probably not. But 315c or 320c would still be reasonably affordable and pay handsomely if you call the breakout.

To a certain degree, trial and error is necessary.

Some helpful tools are looking at volume and open interest. Volume is the amount of the specific strike that has been traded in a single day. Open interest is the total number of option contracts that are currently out there.

If the contract has several hundred in volume, then it's probably a safe bet that people have the same idea. If you notice your contract has very little volume and only a few hundred OI, it could be illiquid which leads to bad spreads and consequently bad fills.

Stocks have different increments for the strikes on their options chain. Popularly traded stocks under $100 should have strikes around $1 incrementally. However, many stocks under $100 with lower volume will have strikes in increments of $5. Many of these will not offer weeklies.

If the technical setup is perfect, but the strikes do not present a good r/r, then I will not trade it. Many liquid options chains trade in increments of $2.5. This slightly changes my mentality, but really only makes a difference closer to expiration.

Ex: If $SQ is trading at $255.50 on Friday morning, I'm going to be very careful before buying OTM calls because the next strike after 255c is 257.5c.

4. Spreads

This is the last step in my analysis but can still ruin a perfect setup. The more liquid the contract is (many people buying/selling) the tighter the spread will be.

$SPY options trade with a .01 difference between bid and ask because so many people trade $SPY.

I look for options that have a minimal spread between bid and ask. I think to myself: "If I buy the ask, how much does the underlying stock have to move for my entry price to become the bid?"

Many smaller stocks are difficult because they have .05 spreads.

For example: $MVIS 11c may have a bid of .15 and an ask of .20. On top of $MVIS already being a cheap stock, you are forced to either bid low, or slap a high ask. $MVIS would have to make a very significant move for your price to become the bid.

Spreads are never going to be perfect. Sometimes bidding the mid-price is the best move. When building watchlists, I look for options with minimal spreads.

In conclusion, if a setup passes these 4 tests, you're good to go.

Good luck!