Criteria for Adding Stocks into a Basket









The month of April is a key Earnings month and it has been a busy one indeed. We also had an FOMC event last week and on Friday of this week we have a Nonfarm payroll event so be mindful of these events prior to taking a trade.

Some of you may have known that I have a personal basket of about 20 stocks that I’ve traded frequently. They have certainly helped me made lots of money 🙂 Whenever any of the trades set up, I have no hesitation to go after them as the probability of success is high.

I have been asked about sharing some key criteria for putting stocks into our basket so I will take this opportunity to share this now:

  • I want the stock to be trading above $30.Remember that anything below that price will create a potential “upside down” risk versus reward ratio where we can lose more than we make.
  • I would like the stock to be trading 500,000 shares or more on a daily basis.
  • The stock would need to have options associated with it since I am looking to trade the option.
  • When looking to buy the option keep your eye on the open interest and make sure they are not too low.
  • If the stock’s IV is in the low 20’s then we may not get enough targeted move as the daily ranges may be too small so keep the IV at 25% or higher.
  • Keep the sector somewhat diversified (some financial, technology, retail, etc.). Make sure the stocks in your basket are not of the same sector.

To sum up, you don’t really have to trade hundreds of stocks to be successful. Just get familiar with some of the stocks’ characteristics and if it consistently delivers good results, you can add them to your watchlist.

Remember, less is more.