June 3, 2013 at 4:18 pm

Avatar of moderatorval
Joined: May. 30, 2013 Posts: 54

I have a personal aversion to trading options on stocks valued below $10, largely because I’ve been burned in the past by lack of volume in the trades, which made the bid/ask spreads wonky. I had a bad run with Darling International (DAR) back when it was under $4 a share, and I was SO SURE it was going to run. Of course, it did, but I was a few years too early.

In any case, today’s Trade of the Day is on ATML, stock that’s ~$8, and those options have decent open interest. I’m tempted to get back in to a lower-priced stock, and this may be a good one to tiptoe into.

Do you have any favorite cheaper stocks to play options on?

“Everyone must choose two pains: The pain of discipline, or the pain of regret.” Jim Rohn

June 5, 2013 at 2:58 pm

Avatar of moderatorcarla
Joined: May. 30, 2013 Posts: 18

I don’t have a favorite, but why not just buy stocks like that outright when you have a hunch? Like you said, if it’s a small-cap stock a lot of times the options volume isn’t great.

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June 17, 2013 at 3:40 pm

Avatar of dtony
Joined: Jan. 23, 2013 Posts: 17

I’ve also been burned on these ultra-cheap stocks. One thing I didn’t realize when buying 125 shares of a $2.00 stock (a small starter position) was that the commission on the trade had put me down ~3% before I even pressed “confirm.” The $8 commission put the cost basis for the $2 stock up to ~$2.06.

And with these small caps moving maybe only a few cents at a time, sometimes over months, there is almost no profit potential.

I guess the way to get around this problem would be to buy more shares to spread out the cost of the commissions. But then again, do I really want more exposure to more highly volatile stocks? I probably won’t make another trade like this again, unless I am really sure of what I’m doing.

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