Zacks.com Featured Expert Kevin Matras Highlights: Buckle, Fairfax Financial and Northwest Airlines
January 30, 2008 at 16:04 PM EST
Kevin Matras shows how a good stock screener can be your best tool for picking options. Stocks in this week’s article are Buckle Inc. (NYSE: BKE), Fairfax Financial (NYSE: FFH) and Northwest Airlines (NYSE: NWA). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109
Screen of the Week written by Kevin Matras of Zacks Investment Research:
This week, I'd like to explain why a good stock screener is the best tool for picking the right options.
Regardless of whether you're buying options or writing them, you not only have to be right on the stock's direction, but also on its timing. Oftentimes, people who buy options with more time in order to be safe are forced to buy options further out-of-the-money because of the cost, which ultimately reduces their chances of profitability.
But by backtesting a stock-picking strategy to see if your stocks typically go up as soon as they're identified, you can buy less time and closer-to-the-money (better) options. Simply put, you can make better decisions as to which options to get into.
For example, let's assume we're buying calls; if you know your stock-picking strategy has a high probability of picking stocks that go up within the first few weeks, you won't have to waste your money on purchasing options with excessive time. And the less needless time you buy, the more money you'll have to spend on buying an option that's closer to the money or even in-the-money.
I won't get into an options lesson in this article, but too many people treat option buying as a lottery ticket. They'll buy the cheapest options (usually meaning several strikes out-of-the-money) and hope for an explosive move (which they'll need if they're too far out-of-the-money). Unfortunately, these moves often never come. And even when they do, often times by expiration, their time value has eroded with no intrinsic value at all.
So, once you have an idea as to how good your screening strategy is at picking winners and how quickly they move once they've been identified, you can then go about picking the best option to give you the highest probability of success.
What does all this mean?
Make sure you screen for good stocks!!! And make sure you know what the probability is for those stocks to move, say within the next week or month, etc. And the only way to really know is to backtest your screening strategies.
Here's an easy way to get started. In the Research Wizard, some of our best and winningest strategies come loaded with the program. Simply add the filter; `optionable' (meaning these stocks have options). Add the optionable filter to these strategies and then go find the best options
Here are three optionable stocks, from some of my favorite stock screening strategies (for 1/29/08):
Get the rest of the stocks from each one of these screens and start making better stock and option decisions today.
And remember, the key to successful stock picking is in discovering those screens that have produced profitable results in the past. And the key to better option selections is in knowing what to expect from your stocks (and when). And how will you know? By backtesting! Click here to find out more about our free trial to the Research Wizard stock picking and backtesting program: http://at.zacks.com/?id=111
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
About Screen of the Week
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