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September 27, 2004

Optionable Stocks, by Price & Market Cap

An important component of any trading plan is the screening process, to look for stock/option candidates that meet the criteria set forth in the plan. I am currently in this process of identifying a set of optionable stocks that meet my criteria, and that I can follow on a daily basis.

I started with the list of all optionable stocks and ETFs available at the 888options site. There's 2300+ optionable stocks, and 100+ optionable ETFs. To generate my initial set of candidates, I decided to use market capitalization and stock price as the screening criteria.

Here's a look at this list, categorized by market capitalization.

There's about 400 stocks (shown in the box) that meet my market capitalization limits - minimum: $5B, maximum: $25B. The reasoning behind these particular numbers -

  • The larger the market cap, the more liquid are the option contracts - this reduces slippage, improves returns, and makes it easier to enter/exit the position

  • The larger the market cap, the lower the volatility and hence a lower probability of a large (>15%) intra-day drop in the stock price

  • The upper limit is to avoid very large companies (e.g. GE) whose lower volatility results in insufficient option premiums w.r.t. my 8% profit target per position

    • Here's another look at this list, categorized by stock price.


    Again, I have highlighted those stocks (approx. 1,350) that meet my $15 - $50 price constraint. This is mainly a function of the maximum investment per position, and the number of contracts I want to deal with per position.

    Combining these 2 criteria results in a set of ~250 optionable stocks. My next step is to determine which of them can potentially meet the "8% return over 3 months" target. Note that I might have to change the specific numbers used in the screen, to ensure that I always have a sufficient number of candidates (say 50-100?) to choose from.

    Posted by galatime at September 27, 2004 03:45 PM

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