How to Build and Maintain Your Options Trading Watchlist
Sarah: Hi everybody this is Sarah Potter. Welcome to the SCT podcast. We are on episode 30 and I have TJ here and this is episode 30 I mean when you turn 30 years old it's kind of a big deal and I feel like you're in a new age bracket, a new category, a new box when you have to check off. I don't know, does that mean you're in a new level here for podcasts?
TJ: Yeah absolutely. I think we should have a big party for the SCT podcast, what do you think?
Sarah: Yeah way to go. Okay, so today's theme is going to be something that we kind of thought was related to being 30 and really what that has to do with is a watch list. So we're going to talk all about how to build a watch list and how to make sure you are modifying your watch list to make sure you're getting the best rates possible out there from the market. So this is kind of something that I think that maybe some people overlook. You talk about treat entries you're all people are always asking about the best strategy, what are the best stocks to trade, how do I find trades from the market but really the root of a lot of the trading and good trading comes from having a good watch list and having a watch list that you can actually find trades from and that's a big key there. You want to have a good watch list but that watch list I have to be able to produce trades for you. So it doesn't really matter how long your watch list is, you want to make sure that you can actually get some decent trades from it on a regular basis. So TJ I'm just curious, if your watch list if you're looking at some stocks, how often would you say you trade the stocks from your watch list?
TJ: Fairly often I would say that if I'm not trading a stock it probably comes off the watch list within three to six months.
Sarah: Three to six months? Okay, so how did you come up with three to six months?
TJ: I just found that if I'm not trading it and I haven't traded it, I probably won't trade it. There's a reason that something hasn't set up. I still may go back to it, may add it back you know further down the road but yeah it just comes off, I try to keep the watch list as uncluttered as possible and just that's just so you know nightly when I'm looking for trades, I can scan through in fine trades really efficiently and not spend two or three hours looking for trades but really narrow it down 15 minutes, half an hour being able to get through quickly of you. How do you build your watch list? What are your criteria?
Sarah: You know I watch this is something that I think you that gets better over time. Hence why are talking about that today, just like a good bottle of wine I think once you've been in the market for a little bit and you've kind of gone through different stocks and decided which ones you like and not, you can really start building a better and better watch list the longer you are in the market and I think you get much better at evaluating a stock to decide whether it's worthwhile. So for me the general rules are things like a high data stock. I love weekly option so you'll notice on my watch list I have basically the majority of those being stocks that have the opportunity to trade weekly options in. But really I want, we need to kind of be alive the stock so we need to be able to find trades in them. So for me if a stock doesn't work that means that's easy as well so if I place a trade in a stock an options trade and it hasn't worked out for me then it's done that a couple times and I'll get rid of it and I don't really want to look at it anymore. So for me that's something like Twitter. Twitter and I just don't get along, we just never have for some reason. I don't know why I'm very good at finding direction in a lot of different stocks but there's just some I'm not good at and one of them is Twitter, so why keep going back to a stock that I'm not that great in when I can go focus on some other stock. So stock like that, like if I don't do well in it I'm going to look to take that off my watch list and then it also has to produce trades. So if something's been sitting around on my watches for a long time and I can't really seem to ever find a good trade in it then I don't think there's really any point to reviewing that stock all the time. So for me, for some reason I have Whole Foods on my list and it's something I've had on my watch list forever and I do like to pay attention to everyone's well but I can't remember the last time I place a trade in Whole Foods, I mean I think it's been months but for some reason is still on my watch list and I still every couple of months go and check it out. So I guess that is breaking my rule a little bit but in general all the stocks are on my watch list are ones that I am going to be paying attention to and looking for opportunities. Now I also do a watch list and a short list, so every Monday I do spend some time trying to put together a bit of a stock list that I'm hoping to trade that week and we basically build that also on Tuesday in the trading room too and then generally I either scratch those off the list if they're no good or have placed a trade in them by Friday but they really need to produce and there's no point, there's opportunity cost in trading. And time is valuable, if you are trading part-time and you want the worked really hard so you can go do something else so say you're retired, if you want to have the opportunity to go do all those great things and you don't want to be sitting in front of the market. So you want to be able to have a watch list that can really produce for you so definitely ones that I will kind of go to very quickly on my watch list would be something like four spreads, like CMG, Amazon those are fantastic. I mean Amazon and Google right now they’re so high, that's a whole other podcast on their own. How to trade stocks over $1,000 now that we've got a few of them. Anyways I digress. Yeah, What are some tips you have for your watch list?
TJ: I think what you've said I think you've covered a lot of what the same thing that I look at. I have my watch list but I also have I would say I probably have 10 to 12 stocks that are my go-to stock every week and I don't see if a stock is working why I need to why I need variety. The only reason I really want to add variety is if that stock, if it doesn't trade the same anymore or if I can't you know if I can't read the stock anymore, if something changes that's when I want to remove the stock but I'm happy trading the same five, six, seven, eight stocks every week. It's not, you know I like variety in my restaurants I like variety in my wine but for stocks I mean if Google and Amazon are making you money every week, why look for something else stick with it till it stops working. I also have different categories on my watch list, obviously I'll have my watch list for credit spreads, I'll have my watch list for selling puts, covered calls, my watch list for buying and selling puts and obviously that all builds together. There's of a lot of kind of stocks that I you know that I have on there I also just kind of keeping an eye on, but traditionally every week I said it's the same 5 to 10 stocks that work, that I like and I have no issue trading the same stock over and over again. The other thing that I really like to do on my watch list is, I really focus on what I'm trading. So for me weekly you have the stocks have a weekly option, generally I'm looking for stocks that are at least a hundred dollars and more the higher the volatility, the higher the beta, the better I'm looking for stocks that that move. I'd like to make a suggestion to somebody about what to do is, is not to get caught up in suggestions that people are making or hey have you heard of this stock you know you should watch it, you can't watch all 3,000 stocks on the NYSC. You really need to break it down into a list a short list that works for you and I know what works for me might not work for somebody else. For example Apple, a lot of people love Apple, for me I kind of tend to steer clear of it. Are there any tips there that Sarah you would?
Sarah: okay, I love Apple. So Apple is something that I think if you're a beginner and I used to talk a lot about that about how I don't think apples the stock you want to get into, when you're first starting trading but it's you don't mind price fluctuating a little bit, Apple can be a really great stock to trade. So yeah I like to trade Apple. Okay, so I have to push back here a little bit because I'm a little shocked that you're saying that you only ever trade five to ten stocks and you do the same thing every week. I probably say I think you get into a pattern, so you might do those same five to 10 stocks a couple weeks and you definitely take advantage of that, you cash out of those trades you get in them again but at some point like the trend ends or the highs are hit and then you kind of have to shift gears to something else. So do you really think you only trade out of five to ten stocks?
TJ: I think it narrows down the problem to around that, I mean give or take. I'm not necessarily trading them. Yeah, absolutely they come in and out of favor every couple weeks but there's definitely my go-to stocks that I love, that I like, that over the years have just really done well and worked for me. It's like PCLN, I love PCLN, I've done really well with PCLN over the years, made a lot of great trades. Other people just don't want to go near PCLN because it is a big mover, it's a $1,900 stock, it moves a lot but if you can find some key strategies that work for you and that you know pay off, hey why not.
Sarah: Yeah you've been doing that PCLN trade quite successfully every Friday forever and that's a pretty good record. Anyhow so that's a good trade but I mean seems like MasterCard, so if you think about it a few years ago, I mean that stock was fantastic to trade spreads and we were selling that all the time and then it split us a lot cheaper now so we've had to change the strategy and so certainly MasterCard would have been something that you would have seen probably both of us trade quite a bit I know that was something we talk about all the time and really over the last couple years it's no longer that, I mean MasterCard is still fantastic to trade directionally in but it's not really something you can get credit in, right? So we does change.
TJ: It absolutely does and I think that goes to it as well as your strategies have to evolve as well as your watch list. I think you make a good point, I mean think of some really big stocks MasterCard, Apple, Netflix, those have all split and now our stocks where you really can't get any premium. I mean MasterCard was a $700 stock so with Apple and now they're trading in the hundreds. So you know you have to evolve we can't go back and keep trading if that set up or that scenario doesn't tell you isn't there anymore.
Sarah: Okay, so let's then move into like building your watch list. So for me when it's time to start if I want to add a few more stocks to the list and I'm interested in things, the things that I do that I find quite helpful is when I look on tradingview.com just to see what kind of news headlines there are, I really like to use net news headlines I know you guys have heard me talk about that before. I don't care so much about what's in the content to the article but the news headlines on market watch or any kind of website you look for, for your news, if the companies are being mentioned a lot it generally means that I want to write that stock down and I might go take a look at it. I'm never going to trade it today when there's a ton of headlines but it is something that I might add to the watch list or look to trade a week or two out. So that's something kind of how I will add the watch list and then certainly post earnings I find those are times to really refine your watch list and look to see whether there's anything you want to add or take off and that's because at earning so many sauce will have such a large move, like you said the characteristics can change. So again we take it back to that opportunity cost it doesn't really make sense to be reviewing stocks that no longer look like there's something that's going to have a trade setup in. So post earnings can be just a good time to basically look through those stocks and say alright or any of these I want to call off my watch list or you know did anything have a really big move so if you go on like the Nasdaq website or Yahoo whatever you want to use for your earnings the track when those are and you can see some of the really big ones, I mean granted that usually means there's headlines in the media as well that'll say you know whatever snap at all-time lows or whatever that happens to be and then I might just go take a look at that stock too so anytime after earning something kind of big move I will go take a look and see if there's anything I need to add to my watch list.
TJ: Yeah that's great. So I guess another question and a question I have for you too is once the stock is on your watch list, you monitor it for a while before you start trading it with real money or if there's a setup will you will you just start trading it right away?
Sarah: I would like to say that I always follow my rules and my rules would be that no. I need to wash it for a little bit and get a feel for how the stock moves especially a weekly auction, especially how that moves on Friday but if the stock has a lot of history then sometimes I will place it right now, that is not the norm so I certainly don't want everybody thinking that I just kind of go crazy on whatever stock I see. I do like to get to know stock but I mean today for example in the trading room there was sell jean I mean I haven't looked at sell jean a long time and a member brought it up and I was like, oh yeah I thought I haven't traded that in a long time and we pulled that up today and I definitely want to add that to my watch list because it does look really good right now and looks like some opportunities to trade. So sometimes you can kind of get ideas from different places and also because you've been trading for a long time and something like that is kind of gone off the cycle off the watch lists at one point or another and maybe it's time to bring it back so over the years over the long term, you basically do get to know a lot of the bigger stocks but they'll just be time so they will be on your watch list and times they won't and don't be afraid to take stocks off your list. Just because your buddy might be trading something and doing really well doesn't mean you need to do it, like I'm happy to come out and say look I don't trade Twitter, I know TJ you trade Twitter I don't trade Twitter if this is okay and I'm fine with saying you know there are some big-name stocks and stocks that people are very familiar with that I'm just not going to touch and I'm okay with that do you have any that you don't trade at all?
TJ: There's lots that I don't trade at all where do we start with popular ones or one so popular? I would say the biggest category that I stay away from financials, I think with the exception of MasterCard and Visa on occasion so financials and biotechs, I have learned that a lot of surprises in the biotech industry and you can see those 5, 10% moves happen overnight for really no reason, the other industries a lot of a lot of construction industries, mining, for example I'll avoid CAT and I'll also avoid a lot of the oil producers, refiners, drillers, I will however trade USO although, I like USO. We actually have a trade placed in USO right now. So yeah there's a lot that I have that I avoided, it's just been observation over the years that I just, how they move doesn't fit with how I trade.
Sarah: Okay, last question for this podcast. What are maybe your top five stocks that you like to trade and why that's sitting on your watch list right now?
TJ: On my watch list right now, USO, I like USO, Amazon, PCLN, Google, TSLA was a perennial favorite, it's always up there, it's always doing something, those are kind of my go to and then other than that there's a few others that that kind of creep in every once in a while but those are the main ones that I look at.
Sarah: okay, so for me Facebook has been awesome the last few months, so I've been all over Facebook. Apple, just all recently now starting to look really good. Netflix, and then yeah I mean I love Amazon and Google to for spreads those are pretty fantastic. Some stocks that I think, one sock in particular that has really changed characteristics over the last few months and if we talk about something that's on your watch list and you're treating a strategy and then it's shifted is Expedia. So Expedia has really exploded over the last few months, it's gone up in terms of price but also I think there's more people trading Expedia than ever and so before I was looking to trade I was doing credit spreads in those and trying to get into them like Monday and Tuesday because by Wednesday the premium had expired in them but over the last like two months I think it's a better candidate for and to do a whole whack load of more strategies in it I think there's more people trading it, I think it's moving really nicely, trending really well so that one is on my watch list but the way I approached that stock has shifted over the last few months too. It's been a good stock but it's definitely changed so I mean I think watch list are always evolving it's a living document and it's all it's never going to be just right you want to always be tweaking it. So I think that's probably a good tip to leave on.
TJ: yeah and if I could I guess leave a tip too is that you can get really scattered in the market because there's so many stocks and I think the traders that end up doing the best at the end of the month, at the end of the year are traders who have found stocks that they can consistently make money in and if you're constantly jumping back and forth from stocks to stock, you really aren't necessarily you know really learning how that stock moves and I think that you can add a lot to your trading by just narrowing your focus and focusing on a couple quality names especially when you first start trading.
Sarah: Those are great advice. Alright guys, happy trading. We will see you at the next podcast or of course you can always come see us trade live at www.shecantrade.com. Happy trading.
