A lot’s happened this week to really drag down U.S. stocks. Between an unsurprisingly poor earnings performance by the latest round of retailers, like Macy’s and JC Penny, and constant new developments breaking out of Washington, it’s no surprise that people are feeling uneasy about putting (and keeping) their money in the markets.
But it’s also a great opportunity to turn this uncertainty into profits.
You just need to know which, of the nearly 4,000 stocks out there, are the easiest – and fastest – ones to “cash out.”
And I’ve got the list right here…
Using Liquidity to Take Fast and Easy Profits
Before I show “the list,” I want to talk to you for a minute about liquidity…
Liquidity basically describes how easy it is to convert a stock or any other security into cash. You want stocks with the most liquidity in your portfolio because you can essentially cash them out quickly and easily when you need to. And those that let you trade options are your best bet. Not only do options let you control more shares at a time (100 per contract) of a stock or security – they also cut the amount of money you spend per trade (thereby cutting your risk) and give you fast profits.
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Now there’s a couple different ways you can check for liquidity, like open interest and volume. But the best indicator is the difference between the bid and ask prices (called the bid-ask spread). The bid price is the price at which you’re willing to pay for the option (or any security). The ask price is the price at which you’re willing to sell the option (or any security). The smaller the difference between these two prices, the better the liquidity (n the trading world, this is referred to as having a tight bid-ask spread). Spreads of a nickel or less indicate the best liquidity.
I use my proprietary tools to narrow down the 4,000 or so optionable stocks and exchange traded funds (ETFs) out there to the ones that offer the tightest bid-ask spreads. But you can find these, too, by searching “stocks with the most liquid options” and checking the Chicago Board Options Exchange (CBOE) Penny Pilot list, which reflect options that trade in penny increments. In fact, nearly 75% of all option volume comes from the stocks and ETFs on this list.
You check out the list by clicking here. Then, when the page populates, click the following link to open the spreadsheet:
From there, all you need to do is look up the options chains for the ones you like.
Tom Gentile
