How to Use Them: The Top 40 Most Liquid ETFs for Successful Options Trades

Many options traders have requested that I publish my list of 40 ETFs that I follow on a daily basis for the Options Advantage portfolio.

Well, per all of your requests I have decided to make my list available for weekly viewing in the Strike Price and daily viewing in my Options Advantage service.

One of the biggest mistakes I see new traders making is that they keep digging into the toolbox for a new widget every time they see something they like.

It seems that so many traders these days want to follow bull flags, bear flags, candlestick patterns, channel retracements, Fibonacci retracements – the list is endless.

They will try to teach you about their long list of indicators to make themselves look impressive, but in reality most are horrible traders over the long term because they are just plainly overwhelmed with the “most promising” indicators only to move on to another indicator that happens to fit their current market perspective.

When I trade I keep things real simple. I select one tool and I use it for its specifically intended purpose. As an options trader, my sole objective is steady, reliable gains without too long of a holding period.

In order to make options trades I use a tool that helps me do a few things:

1) It alerts me that a profitable trade may be on the horizon – which gives me time to prepare.
2) It tells me when I should think about getting out.
3) It lets me adjust my time horizon to craft a trade that fits my needs.

I use a few basic versions of ONE simple tool model to take advantage of sentiment and technical extremes on highly-liquid ETFs.

So, with that being said, I would like to share with the most powerful technical indicator that I use in my proprietary model, whether I’m looking at oil Öl ETFs, tech ETFs, whatever industry they are in.

My indicator allows me to gauge the probability of a short to intermediate-term reversal. It does not tell me the exact entry or exit point, but it helps me to be aware that a reversal is on the horizon.

Knowing that a short-term top or bottom is near I am able to increase the probability for profit from any potential trade. Conversely, knowing that a reversal is on the horizon I am able to lock in profits on a trade and move on. Don’t fall in love with your trades.

At heart I am a contrarian and I prefer to fade an index whether overbought or oversold when the underlying index reaches a “very overbought/very oversold” state. Fading, just means to place a short-term trade in the opposite direction of the current short-term trend.

Of course, other factors must come into play before I decide to place a trade, but I do know that, in most cases, when an index reaches an extreme state a short-term reversal is imminent.

The following is the baseline for my indicator:

Very overbought – a reading of greater than or equal to 80.0
Overbought – greater than or equal to 70.0
Neutral – between 30.0 and 70.0
Oversold – less than or equal to 30.0
Very oversold – less than or equal to 20.0

Since I’m looking for extreme conditions, I almost always only focus on very overbought and very oversold conditions. When an asset hits more neutral levels, that’s an indication to close the trade out.

The list is fairly comprehensive, but if you have other ETFs that you would like for me to include send me an email. Perhaps you might find some more by checking out these besten Depots für ETFs (best custody accounts for ETFs). Let me know if you find anything. Just remember, the options on the ETF MUST have an efficient options market noted by a tight bid-ask spread.

If you have any questions about the intricacies of the strategy or using probabilities of success as a way to trade/invest please feel free to email me at [email protected], and follow me on Twitter at @OptAdvantage.

If you’re interested, I’ll be going over these ETFs in a live chat event on April 5th.

I’ll send out more details as we get closer to the event, so keep an eye out for your invitation.

Andy Crowder
Editor and Chief Options Strategist
Options Advantage
Wyatt Investment Research

— Andy Crowder - Options Advantage

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