There are thousands of stocks that you can choose from to trade during the week. In order to help you make your trading decisions, I have compiled four things for you to consider when you are looking through stocks in order to set up options trades. These key considerations will help you decide what stock to place a trade versus another.

The Size Of Your Account Versus The Cost of the Stock

Sure we all hear about people trading Apple (AAPL) and doing well in those trades. It can be very enticing to be lured in to trading some of the flashier stocks, and for some this is great, but for others (especially if you are trading using a small account) trading AAPL can eat up much of your margins in your account.

Bottom line? AAPL is an expensive stock. If you are trying to trade conservatively, it might be wise to consider trading some of the technology stocks that are a little less pricey. For example, if a trade is also setting up in a cheaper stock like BlackBerry (BBRY) or International Business Machines (IBM) and you can make the same percentage of profits; I think it makes more sense to trade a stock that will allow you to spread out your trading potential across multiple stocks rather than only afford to place one trade at a time in something like AAPL. When you a selecting stocks to trade it’s important to be aware of the size of your account to ensure your risk/reward is in line with the size of your account.

Vary The Industry You Trade At One Time

Diversifying isn’t a new term, whether you are speaking with your financial planner, or a banker, everyone talks about the importance of being diversified. Diversification should also be considered as you choose your trades according to your trading plan. Consider putting on multiple trades in various stocks across various industries rather than putting all of your eggs in one basket (as the saying goes). Some sectors are stronger at certain times versus others. Just because the S&P is up one day, it doesn’t it mean there won’t also be individual stocks that will be down.

High Volatility

If you are trading options by selling premium, you want to find stocks that have high volatility. Higher volatility means higher premium, and if your goal is to collect premium then it just makes sense to choose stocks that give you enough premium that works within your risk/reward parameters and your trading plan. High volatility is especially important for traders using credit spreads as their main trading strategy. So as you are sifting through many stocks for option trades, sifting through stocks looking for high volatility will help you find stocks to trade.

Pay Attention To Your Winners

Stocks have unique nuances that you will begin to notice the more you trade particular stocks. When you find some stocks that have treated you well keep those on your shortlist. Now, your shortlist should always remain short, but keep the stocks that treat you well close. They should be the ones you are watching on a regular basis.

With thousands of stocks to choose from it’s important that every trader has a means of sifting and sorting through stocks to find good trades. What are some other tips that you consider?

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