What Stocks To Buy Using Call Options
Options Investing Hub ⮞ Long Call Options ⮞ What Stocks To Buy Using Call Options
6 RESOURCES
⮞ Introduction
⮞ Pros & Cons Of Long Call
⮞ What Stocks To Buy Using Call Options
⮞ Entry Rules Of Long Call
⮞ Strike Price & Expiry Date Selection
⮞ Exit Rules Of Long Call
What Stocks To Buy Using Call Options
The chapter is on What Stocks To Buy Using Call Options.
As I mentioned in the previous chapter, being selective of the stock to buy call option on - is one of the ways to manage our risk.
After all, if the underlying stock is a fundamentally good company that is able to appreciate in share price, your options will make money as well.
When it comes to choosing the stocks to buy using call options:
- It has to pass the 8-Point Checklist and is overvalued* or
- It is a decent ETF
The 8 Point Checklist Stock
If you had read the Stock Investing Hub - you probably already know what is an 8-Point Checklist and how I used it to filter out poor quality companies.
(If you have not read the 8-Point Checklist, you can do so right here at "8 Financial Numbers To Look Out For When Investing")
*Now, you might be surprised that I included the criteria that the stock is overvalued.
Why wouldn't I use this strategy for undervalued stocks?
Well, because if a stock is undervalued, I will much rather just outright buy the stocks rather than buy a call option.
The reason for that is because, when it comes to value investing - it takes time for the stock to reach its intrinsic value.
Sometimes, it can take a few months - or even a few years.
And when it comes to buying call options - we are fighting against time because of time decay.
That's why, I will much rather buy the stock so that I do not have to worry about time decay.
Here's what I mean by the effect of time decay.
A Decent ETF
For those, who are unfamiliar on what to look out for when it comes to assessing the fundamentals of the company - the next best option is to look at ETFs, also known as Exchange-Traded Funds.
Here are some of the few ETFs that I like because of the companies in the ETF, as well as its liquidity:
- SPY - basically the top 500 US companies
- XLK - The technology sector
- XLV - The health sector
What's Next?
Now that we know what are the stocks or ETF to look at when using long call options, we want to take a look at the specific entry rules - when it comes to buying call options.
These entry rules are strict and are intended to manage your risk when you enter a call option position.
Note: One of the biggest reasons why the options hub was built as there were too many people who get burnt because of the lack of knowledge of how options works and its risks involved. This resource hub aims to equip beginner investors with the knowledge of options and how they can manage their risks when investing with options.
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