# Finding Stock Options Opportunities

Now you are ready to make your first trade. You might ask yourself how to trade options and how do I *find opportunities in stock options.* There are many ways of doing this. We’ll show you a very successful way to find the right kind of options and strategy.

Selling Options have been proved the most profitable way. We will show you how to do it. It is important to know how to trade stock options and if it is likely that you are going to make money and if it is possible that the underlying will reach a certain price. These two factors are called Probability of Profit and Probability of Touch.

### Finding opportunities in stock options

To find the right opportunities in stock options we look to Volume, liquidity, Implied Volatility, and POP or POT. What is the difference and how does this help in finding opportunities in stock options?

**Probability of Profit (POP)** is defined as the probability of making at least $0.01 profit. In short option premium strategies it can be used to determine which strikes to sell, creating a range in which the stock can trade for a profitable outcome. With trading ranges, you no longer have to rely on directional assumptions when placing trades.

**Probability of Touch (POT)** is defined as the probability that a stock will “touch” a certain price over a time period. In relation to trading short option premium, POT is used to determine the probability that a stock will touch or “test” the outside of our trading range. Understanding POT can help us understand why we never manage our losers with stop losses.

With our strategic implementation we almost always **sell option premium**, creating a range in which the underlying can move while maintaining a profit. Knowing the probability of profit and probability of touch in our trades allows us to be more mechanical about how to place trades, manage them and eventually close them for a profit.

Probability of touch and probability of profit are directly related. *The POT is roughly twice the Inverse of the POP. *If we place a trade with a 75% probability of profit, the probability of touch is 50% (2 x 25%). So when placing this trade, we expect to be profitable 75% of the time and we expect there is a 50% chance that the position is tested. Understanding the difference is vital to proper trade mechanics and finding opportunities in stock options.

Read more on probabilitycapitalgroup.com

### Rules to spot Opportunities

It makes a lot of difference if you have a large account size or a small one in finding trading opportunities in stock options. You might look either for expensive or cheap options. We want everyone to be able to trade options so we start with a small account size of $2.500.

We use the following rules. Opportunities in stock Options are Options with at least a High Implied Volatility over 50%. We like to sell option premium strategies and use a maximum of 20% of our total account. To spread the risk we enter at least 5 different trades. For each trade does not take more risk than $100. Your probability must be at least higher than 50%, that you have the right amount buying power reduction, A trade makes only sense if your return on capital is enough, e.g. in the neighborhood of 1% a day.

#### Conclusion

We **find opportunities in stock options** when the options are liquid, enough volume, has a high Implied Volatility, and can put on a strategy on with a probability of profit of 55% or more.

I trust that the previous paragraph and the video provides a clear answer on finding opportunities in stock options. In the next article we will explain Best Options to Trade.