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Selecting an Underlying to Trade

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

With smaller accounts, tastybite traders have less room for error when selecting an underlying to trade. Before placing an order, consider the liquidity, implied volatility level, any binary announcements, and previous price action to determine a directional bias.

Wider bid ask spreads can greatly diminish a portfolio’s performance at the end of the year in the form of slippage. High levels of implied volatility increase the credit received for a short premium trade giving traders a slight edge. Although binary announcements can be a great opportunity, unforeseen announcements can greatly move the price unexpectedly. Previous price action can impact option skew and may help traders determine whether to sell put spreads or call spreads.

Tune in as Tom and Tony discuss the importance of these factors in determining which underlying to trade.

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