With the war in Iran heating up again, oil prices are going to see greater volatility. Trying to pick which oil ticker will display a nice, tradable pattern is a tough game. A simpler way to find a good trade is to use an oil related ETF like USO or OIH. But not all ETFs are the same and some are much better suited for options trading. Let’s take a look at the characteristics that make them more ideal for high probability options trades.

Liquidity

The first thing to check is the volume of trades for the ETF you are considering. The higher the volume, the easier it is to get an options order filled. If the volume is low, you can get stuck in a position, even when it is showing the perfect pattern and set up on your chart.

Open Interest

This tells you how many contracts are active for that option currently. Check various strike prices for the most active contracts and make sure your target price has enough people trading it. This will ensure you can get in and out at the prices you want. Think of it as an auction room. If there is only one person in the auction room you will only have one price to choose from. If the room is full, you have a much better chance of finding someone willing to be on the other side of your trade.

Weekly Options

ETFs that see a lot of option activity will usually offer weekly options. Exchanges only offer weeklies on the ETFs they can make a market for. This doesn’t mean you have to trade the weekly options but it is a good sign that you will be able to get the price you want.

Keep in mind that there are tons of variations of ETFs–Index, Sector, Leverages, Inverse. Be sure to do your homework on the underlying ETF before you start looking at the options.

Keep learning and trade wisely,

John Boyer

Editor

Market Wealth Daily