How to Decide which Stock to Buy in Less than 10 minutes

In this time and age where we want everything to be done fast and quick, we want to decide if the stock that we are looking at is worth taking a second look to decide if we should take it further. With a large abundance of stocks being listed on various exchanges and an influx of upcoming Initial Public Offerings (IPO) interests being registered. A company's financial ratios have to be outstanding before investors will take a second look and uncover its hidden assets and be invested in its growth story.

In this article, I am going to share with you how I quickly decide if the stock you are looking at is worth your time to perform an in-depth analysis or if you should let go and move onto another stock instead.

Read: Best Free Mobile Apps for Investing

How I Perform this 10 minute Check

By utilising Investing.com Mobile App available on Android and iOS platform

First, go to Tools followed by Stock Screener

Read: How to Monitor Upcoming IPO's for Free

Select Country, Exchange and Sector to narrow down selection

Add Criteria: Industry, P/E ratio

Why I chose Industry as a criteria is so that the P/E ratio selection that follows will be applicable for the selected industry. The results might be skewed if the industry is not set in place as different industries have different industry P/E ratio.

Next, select the P/E ratio option and narrow the P/E ratio range to the mid mark.

The reason for using the mid-mark as the cut off point is because generally a higher P/E ratio can indicate that the stock is being over-valued. Also, a higher P/E ratio means investors expect higher earnings and it also implies that many are chasing this stock. I personally do not like to chase the stocks that are "hot" or trendy at the moment because I see it as a "bubble" that will burst once the craze is over.

Read: Beating the Street by Peter Lynch

Screener Results are presented

Read: One Up Wall Street by Peter Lynch 

Personally, I will only consider the instruments listed on the main board exchange. In this case, it will be NYSE and NASDAQ and disregard the OTC Markets.

Once the instruments are collated for the different industries, I will input them into my template with more detailed ratios and criteria where I will perform a detailed investigation for each company.

Know of any methods other than the above? Do share with our fellow readers so we can all learn from one another! Feel free to share in the comments section. 

How to Monitor Upcoming IPO's for Free

With the recent pricing of popular Initial Public Offerings (IPO) such as Uber, Lyft and Pinterest, it got me curious on how can I source information for upcoming Initial Public Offerings (IPO) before I even read it on the official news website. Usually such information would be kept under wraps till the details are confirmed and by then, it would be disadvantageous to make a decision as it has become public news.

Read: What is Secondary Public Offering

A Guide to Trading Daily Leverage Certificates (DLC)

What is Daily Leveraged Certificates

- A leveraged product that offers investors 3, 5 or 7 times the daily performance of the underlying asset, whether it is a rising or falling market

- e.g if the underlying moves 1% from its closing price the previous day, the value of the 5x DLC will move by 5%

- designed to be traded over short periods of time, usually traded on an intra-day basis

- long and short DLC available to trade both rising and falling markets

- will never lose more than your initial investment


How to Trade DLC

Beating the Street by Peter Lynch

Book Summary on Beating the Street by Peter Lynch with John Rothchild 

This is a follow up reading from One Up Wall Street book summary where Lynch writes about how an ordinary person can also be 'One Up' the Wall Street professionals. 

This book is akin to a diary that Lynch has written about his years spent investing in the markets working with Fidelity. In this book, he shared with readers the hits and misses and shared how he analyses the companies. 

 

Herewith I have extracted the key points from this book. 

One Up Wall Street by Peter Lynch

Book Summary on One Up Wall Street by Peter Lynch

How to Use What You Already Know to Make Money in the Market

For those Time Starved Professionals, I have compiled the list of points which I feel are relevant to the man in the street. Although this book is about navigating the financial markets, it is easy to read as Lynch wrote this with the intention for the everyday people to read. His aim is to show us that understanding the markets is not rocket science, arm yourself with knowledge and be patient. This book aimed at long term investors. If you are here looking for fast gains and strategy play, then this book is not for you.

Insights on OCBC Securities - A Practical Guide to Precise Entry and Exit

Recently I attended a free Seminar organised by OCBC Securities on a Practical Guide to Entry and Exit. The speaker that shared his thoughts with us was a trader who has more than 20 years of trading experience, Wong Kon How. I have shared below on the insights gleaned from his seminar with us. Feel free to share your thoughts with me in the comments section! 

*Disclaimer: This is not a paid article. The opinions expressed are writer's own and does not intend to discredit anyone's else. The inspiration for this article was taken from the speaker.


Investors can be Classified into 4 Quadrants

Guide to Investing Options [Options Clearing Corporation]

1. Basics: When you purchase an option --> Long position 
    Write an option --> Short position 

2. Set your Strategy 
    - Want more Income --> write Covered Calls
    - Protect the value of the stocks that you own 
                   - Purchase Puts
                   - Purchase options on an Index that tracks the type of stocks in my portfolio 
the more time until expiration, the higher the option premium, because the chance of reaching strike price is greater 

Volatility Skew Information

Volatility Skew
- situation where individual options on a particular entity have different implied volatilities that form a pattern 
- the pattern can be a positive or negative skew

Positive Skew (forward skew)
- higher strikes, higher IV

Negative Skew (reverse skew)
- lower strikes, higher IV 

Horizontal Skew
- long term options with lower IV
- because longer term options have uncertainty of future news


If skew is (+) and IV is Low Percentile --> Put Backspread
If skew is (+) and IV is High Percentile --> Call Ratio Spread
If skew is (-) and IV is Low Percentile --> Call Backspread
If skew is (-) and IV is High Percentile --> Put Ratio Backspread



Credits: https://www.optionstrategist.com/blog/2013/03/volatility-skew-information

About our Volatility Data - Implied Volatility and Historical Volatility

Estimate of the volatility of the underlying stock

Low implied volatility --> Option considered cheap 

Don't blindly buy or sell based on Implied Volatility. There may, in fact, be a good reason why the options are expensive. Perhaps the company is involved in a major litigation, or it is a biotech company that has a major drug up for review before the FDA. Conversely, if options are very cheap, perhaps the company has agreed on an all -cash buyout. 


Index Symbols begin with $

Futures Symbols begin with @


Credits: https://www.optionstrategist.com/products/category/free-analysis-tool

Covered Call Writing: Why Cash- Base Put Selling is Superior

Naked Put Selling = Covered call writing (but naked is better strategy due to lower cost)

Covered call requires 2 commissions (stock and written  call). If you want to sell, it will be another round of commissions.

Naked Put - expires worthless


Credits: https://www.optionstrategist.com/blog/2012/11/covered-call-writing-why-cash-based-put-selling-superior

Put - Call Ratios

The trading volume of put options to call options indicates the Investor Sentiment

How to interpret put-call ratio:
- higher ratio: time to sell
but some see it as a Contrarian Indicator



Credits: https://www.optionstrategist.com/blog/2012/11/about-put-call-ratios

Which Option To Buy: Deciding What Contract Is Best

(i) Day Trading

- Uses the underlying instrument with the highest possible delta (trade the stock, NOT the option)

(ii) Short term Trading (1 to 2 weeks)

- Can buy short term

- In-the-money option

- Large delta (respond closely to the movement of the underlying)

(iii) Intermediate term Trading

- Can use lower delta due to longer trading period

- Large moves might happen due to longer trading period

- trade at-the-money option

(iv) Long Term Trading

- use even lower delta

- at-the-money option

- LEAPS option

Credits: https://www.optionstrategist.com/products/category/free-analysis-tool

Options Trading Glossary

Backspread	Any spread in which in-the-money options are sold and a greater quantity of out-of-the-money options are bought. In a more general sense, it may refer to any strategy that makes money when the market becomes volatile.
Bear spread	A spread which makes money if the underlying stock or future declines in price. Typically constructed by buying puts at one strike and selling a like number of puts with a lower strike
Bull spread	A spread which makes money if the underlying stock or future rises in price. Typically, one would buy calls at a certain strike and sell the same number of calls at a higher strike.
Calendar spread (time spread)	A spread in which one sells options at one strike and buys options at a longer maturity with the same striking price. In a neutral calendar spread, one would not necessarily buy and sell the same quantity of options. The spread may be constructed with either puts or calls, but they are not mixed; that is, if one buys calls, he also sells calls to complete the spread -- puts would not be involved in that case.
Call Calendar Spread	buy long term call + sell equal no. of near month at-the-money calls of the same underlying at the same strike price
	why? --> sell time. We hope that Price remains unchanged at expiration
Bull Calendar Spread	if you are bullish --> sell near month calls
Neutral Calendar Spread	if you are neutral --> sell near month call
Put Calendar Spread	replicate with puts
Covered Option	covered means you have an offsetting position in that underlying security
	written calls means covered by long stock
	written puts means covered by short stock
Beta	A measure of how a stock’s volatility changes in relation to the overall market. A beta may help you determine how closely a stock in your portfolio tracks the movement of an index, if you’re considering hedging with index options. A beta of 1.5 means a stock gains 1.5 points for every point the index gains—and loses 1.5 points for every point the index loses.
Alpha	A measure of how a stock performs in relation to a benchmark, independent of its beta. A positive alpha means that the stock outperformed what the beta predicted, and a negative alpha means the stock didn’ t perform as well as predicted.
Delta	The amount by which an option's price will change if the underlying security moves one point in price. See also 'position delta'.
	The general rule is this: the shorter-term the strategy, the higher the delta should be of the instrument being used to trade the strategy. (more movement)
	ie. Delta increase as you get closer to expiration for near or at the money options
Gamma	The amount by which the delta will change when the underlying stock moves by one point. See delta.
Theta	Theta is a way to measure the impact and exposure of the passage of time on an option’s price.
	In theory, theta represents how much an option’s premium may decay per day or week with all other market factors and variables remaining the same.
	Theta is generally expressed as a negative number, and reflects the amount by which the option’s value will decrease every day.
Vega	A term to describe the amount by which an option's price will change for a 1 percent change in the volatility of the underlying security.
Rho	Rho is a value intended to measure an option contract’s sensitivity to interest rate changes.
	It is a way to assess the potential change in an option’s value given a change in interest rates.
	Rho and interest rate changes have the strongest impact on longer-term options.
	most traders agree that rho has less of a measurable impact on option prices overall
Open Interest	Net outstanding open contracts that have been purchased
	meaning only count 1 side
Ratio Spread	no of options sold > number purchased
Straddle	Any position that involves both puts and calls on the same side of the market, with same strike price
	Both options have the same underlying and same expiration date
Strangle	Any position that involves both puts and calls on the same side of the market, with Lower strike price
	Both options have the same underlying and same expiration date
Open interest	The number of open positions for a particular options series. High open interest means that there are many open positions on a particular option, but it is not necessarily a sign of bullishness or bearishness.
Volume	The number of contracts—both opening and closing transactions—traded over a certain period. A high daily volume means many investors opened or closed positions on a given day.
Liquidity	The more buyers and sellers in the market, the greater the liquidity for a particular options series. Higher liquidity may mean that there is a demand for a particular option, which might increase the premium if there are lots of buyers, or decrease the premium if there are lots of sellers.
Married Put	You simultaneously purchase shares of stock and a put on that stock

Credits: https://www.optionstrategist.com/products/category/free-analysis-tools