Tip #7 – Pick Stocks in a Strong Uptrend
Finally, as with all option strategies, the assessment of the underlying stock is the most critical factor.
Selecting an optimal option strategy is no substitute for successfully gauging the future movement of the underlying stock. Focus on stocks in a strong uptrend with solid downside support.
In keeping with our behavioral valuation approach, look for stocks that are viewed with a healthy dose of pessimism, since such sentiment helps to keep the rally intact. Tried and true support is particularly important, since a put seller benefits far less from a major rally in the stock relative to what can be lost in a major decline.