Using Fundamental Analysis To Screen For Option-Selling Stocks
Dr. Alan Ellman | Apr 12, 2015 01:16AM ET
). An excellent free site to generate this information is: www.finviz.com
In the figure below, there is a screenshot of fundamental screens that generated 45 candidates. Adjustments in the screening criteria can be made to be stricter of less challenging to pass:
FINVIZ screen for fundamental analysis
In this screen, I set up 3 descriptive screens and 6 fundamental screens highlighted in the “yellow cells”:
Descriptive screens (avoid thinly-traded and penny stocks)
- Market cap: mid-cap and larger
- Price: over $15
- Average volume: over 300k shares/day
Fundamental screens
- Price/Book ratio: under 4
- Earnings/share growth past 5 years: positive
- Earnings/share growth projected over next 10 years: over 10%
- Sales growth the past 5 years: over 10%
- Return on equity: over 15%
- PEG ratio: under 2
The criteria set up in this screen can be adjusted but I’ve shown several elite requirements from a fundamental perspective and it generated 45 candidates some of which are shown below the screening criteria. The next step would be to add in the 50 stocks from the IBD 50 (minus those that have no options) and move on to the technical and common sense screens. Ultimately, we will create a watch list of high-quality candidates for our option-selling strategies.
The screenshots below demonstrate the screening process used to craft our premium reports and a sample of a partial watch list (generated a few months ago) developed from the process:
Premium report screening process
Get The News You Want
BCI Premium Watch List
Conclusion
In the BCI methodology we begin the screening process for option-selling candidates using fundamental analysis. This is done for BCI Premium members on a weekly basis and can be accomplished without membership with such free sites as finviz.com.
Market tone
Corporate merger & acquisition activity has been on a roll and on a pace for the 2nd busiest year since 2007. This is a bright spot for the US stock markets. This week’s reports:
- The minutes of the March FOMC reflected a bias NOT to raise interest rates in June, a short-term positive for the stock market
- The Market Services Purchasing Manager’s Index rose to 59.2 in March, the best level since August, 2014
- The ISM Services gauge fell from 56.9 to 56.5 but still reflecting signs of expansion
- The US jobs openings report hit a 14-year high in February despite a week jobs report last week
For the week, the S&P 500 rose by 2%% for a year to date return of 2.1%, including dividends.
Summary
IBD: Uptrend under pressure
: 5/6- Buy signal since market close of January 23, 2015
BCI: This past week off the next earnings season which I believe is especially significant because the weekly economic reports have been leaning slightly negatively of late. Corporate earnings is what may determine how nervous the institutional investors become in the near-term in addition to possible FED action in June. Let’s keep a close eye on earnings surprises. In the interim, I am taking a defensive posture and favoring in-the-money strikes 2-to-1. An alternative would be to sell out-of-the-money cash-secured puts. This site remains long-term bullish and expects a resurgence of our economy in the second half of the year.
Original post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.