Option Opportunities in a Market Boom: Uncovering High IV Stocks with Barchart's Naked Put Tool

With the market exhibiting bullish sentiment, it's an opportune time to explore the Naked Put Screener. By identifying stocks with high implied volatility, as indicated by an IV Percentile above 60%, traders can consider option selling strategies such as naked puts. The Naked Put Screener offers a curated selection of large-cap stocks meeting specific criteria, including a high IV Percentile, substantial market cap, and elevated call volume. This article provides further context on cash-secured puts, explaining their nuances and potential returns. By considering factors such as the IV Percentile, moneyness, and expiration dates, traders can strategically employ the Naked Put Screener to identify potentially profitable option trade ideas.

Option Opportunities Amidst Market Optimism: A Comprehensive Analysis Using Barchart's Naked Put Screener

Implied Volatility as a Key Indicator

In the current buoyant market climate, identifying stocks with elevated implied volatility (IV) presents potential opportunities for option traders. Implied volatility is a measure of market participants' expectations of future price movements, and high IV levels often indicate heightened uncertainty and potential for large price fluctuations.

One metric commonly used to assess IV is the IV Rank, which compares the current IV level to the historical range over the past twelve months. An IV Rank of 100% indicates that the current IV is at its highest within the given period, while a 0% IV Rank denotes the lowest point. Notably, elevated IV Ranks can signal favorable conditions for option selling strategies.

Screening for Stocks with High IV

To identify potential candidates for option strategies, we utilized Barchart's Naked Put Screener with the following parameters:

• IV Percentile: Above 60%
• Market Cap: Over $40 billion
• Total Call Volume: Exceeding 2,000

This screening process yielded a list of large-cap stocks with high implied volatility, providing a foundation for further research and option strategy development.

Naked Put Screener Results

Applying the specified parameters to the Naked Put Screener generated a list of stocks, including Coinbase (COIN), Super Micro Computer (SMCI), Tesla (TSLA), Arm Holdings (ARM), and Nvidia (NVDA).

The Naked Put Screener employs additional criteria to identify stocks suitable for selling naked puts. These criteria include:

• Market Cap: Greater than $40 billion
• Days to Expiration: 15-45
• Option Volume: Above 50
• Open Interest: Exceeding 100
• Moneyness: -15% to -5%

Implementing a Cash-Secured Put Strategy

One option selling strategy suitable for stocks with elevated IV is the cash-secured put. This strategy involves writing an out-of-the-money or at-the-money put option while simultaneously setting aside sufficient cash to purchase the underlying stock at the strike price if assigned. The intent is to either profit from the option premium if the put expires worthless or acquire the stock at a reduced cost if the option is assigned.

Example: Taiwan Semiconductor (TSM) Naked Put

To illustrate the cash-secured put strategy, let's consider Taiwan Semiconductor (TSM). As of the publication date, selling the April 19th, $133-strike naked put on TSM would yield a premium of $261 per share, which would be deposited into the trader's account.

If TSM's stock price remains above $133 by the expiration date, the put option will expire worthless, resulting in a 2.0% return on capital at risk for the trader, which equates to an annualized return of 27.1%.

Conversely, if TSM's stock price falls below $133 by the expiration date, the trader will be assigned and obligated to purchase 100 shares of TSM at the strike price of $133. However, due to the premium received, the effective net cost of the position would be reduced to $130.39 per share, effectively representing a purchase price 5.37% below the previous day's closing price.

Risks and Rewards of Cash-Secured Puts

Cash-secured puts offer several advantages. They require less capital than purchasing the underlying stock outright, allowing for potential returns without the full commitment of funds. Additionally, the premium received can provide a cushion against potential losses if the stock price declines.

However, selling cash-secured puts also carries risks. If the stock price falls significantly, the trader may be forced to purchase the stock at a higher price than the current market value. Furthermore, if the put is assigned, the trader is obligated to hold the stock until the expiration date, limiting flexibility.

Conclusion

Barchart's Naked Put Screener is a valuable tool for identifying stocks with high IV and potential for option selling strategies. By selecting stocks with the desired characteristics and implementing a strategy such as the cash-secured put, investors can potentially generate income or acquire stocks at a reduced cost.

It is crucial to emphasize that options trading involves substantial risk, and investors could lose the entirety of their investment. Thorough research, due diligence, and understanding of the risks involved are essential before engaging in any option trading activities. Consultations with a financial advisor are highly recommended to ensure a comprehensive understanding of the complexities and potential implications of option strategies.