Trading options with a small account requires careful stock selection. You want stocks that offer high liquidity, reasonable volatility, and lower-priced options premiums, which allow you to manage risk and leverage your capital effectively. When you’re working with a smaller account, it’s crucial to choose stocks that provide solid opportunities for both growth and income through options strategies like covered calls, cash-secured puts, or credit spreads.
Here’s a list of some of the best stocks to trade options for small accounts, selected based on liquidity, volatility, and affordability of their options premiums.
Top Stocks for Options Trading with a Small Account
1. Apple (AAPL)
Apple is one of the most popular stocks for options trading due to its high liquidity, tight bid-ask spreads, and reasonable options premiums.
Why AAPL works:
- Liquidity: Apple has some of the most liquid options in the market, meaning you can easily enter and exit positions with tight spreads.
- Affordability: While the stock price is relatively high, Apple offers plenty of low-priced options with weekly expirations, which allow small accounts to get involved without risking too much capital.
- Volatility: Apple has moderate volatility, which is ideal for selling options like covered calls or cash-secured puts.
Best options strategies for small accounts:
- Cash-secured puts for collecting premium while aiming to buy the stock at a lower price.
- Covered calls for income generation if you already own shares.
- Debit spreads for limited risk while taking advantage of price moves.
2. Ford (F)
Ford is a great stock for small accounts due to its relatively low share price and high volume of options trading. It provides excellent opportunities for selling covered calls or buying options at an affordable rate.
Why F works:
- Low Share Price: Ford’s share price is typically in the low double-digits, making it accessible for small accounts to buy 100 shares for covered call strategies.
- High Liquidity: Ford has a large number of options traded daily, ensuring you can enter and exit trades easily with low transaction costs.
- Moderate Volatility: Ford is a less volatile stock, which is great for options traders looking for stable income through strategies like covered calls.
Best options strategies for small accounts:
- Covered calls for generating income on long positions.
- Cash-secured puts to potentially acquire shares at a lower price.
- Vertical spreads for trading short-term price movements with limited risk.
3. SPDR S&P 500 ETF (SPY)
SPY is one of the most traded ETFs in the world, and its high liquidity and narrow bid-ask spreads make it a great choice for options traders with smaller accounts.
Why SPY works:
- High Liquidity: SPY has some of the highest options trading volume, which ensures tight spreads and easy trade execution.
- Affordable Options: SPY offers a wide range of options with various expirations and strike prices, giving you flexibility even with a small account.
- Volatility: SPY’s volatility is moderate, making it ideal for strategies like iron condors, credit spreads, and debit spreads.
Best options strategies for small accounts:
- Iron condors to capitalize on low volatility environments.
- Credit spreads for consistent income with defined risk.
- Cash-secured puts to collect premium while aiming to buy SPY at a lower price.
4. Palantir Technologies (PLTR)
Palantir is a popular stock among retail traders, and its relatively low share price and high volatility make it a good candidate for options trading with a small account.
Why PLTR works:
- Low Share Price: Palantir’s stock price is typically in the lower range, allowing small account holders to buy 100 shares for covered call strategies without a large capital outlay.
- Volatility: Palantir has higher volatility, which is attractive for options buyers looking to capitalize on sharp price movements.
- Liquidity: Palantir has plenty of liquidity in its options, making it easy to get in and out of trades quickly.
Best options strategies for small accounts:
- Debit spreads to benefit from sharp price moves with limited risk.
- Covered calls to generate income on long positions.
- Cash-secured puts to collect premium while potentially buying the stock at a lower price.
5. Advanced Micro Devices (AMD)
AMD is a tech stock with high volatility and strong liquidity, making it an excellent candidate for options trading. It’s particularly attractive for small accounts looking to trade options with high reward potential.
Why AMD works:
- High Volatility: AMD’s volatility provides opportunities for options traders to profit from large price swings, which is ideal for strategies like debit spreads or buying calls/puts.
- Good Liquidity: AMD options are very liquid, allowing for easy entry and exit at fair prices.
- Moderate Share Price: While AMD isn’t a low-priced stock, its options premiums are reasonable, allowing smaller accounts to participate in various strategies.
Best options strategies for small accounts:
- Debit spreads to limit risk while taking advantage of price movements.
- Iron condors for range-bound trading.
- Cash-secured puts to acquire stock at a lower price while collecting premium.
6. Coca-Cola (KO)
Coca-Cola is a stable, dividend-paying stock with low volatility and affordable options premiums, making it ideal for conservative options strategies.
Why KO works:
- Low Volatility: Coca-Cola is a low-volatility stock, which is great for traders looking for stability and consistent income generation through options strategies.
- Liquidity: KO has high options trading volume, ensuring tight bid-ask spreads and ease of execution.
- Steady Growth: KO’s steady price movement is perfect for covered calls or cash-secured puts, where you’re looking to collect premiums over time.
Best options strategies for small accounts:
- Covered calls for steady income on owned shares.
- Cash-secured puts for consistent premium collection with lower risk.
- Vertical spreads for limited risk and capital-efficient trades.
7. Bank of America (BAC)
Bank of America is a great choice for small accounts due to its affordable share price, strong liquidity, and moderate volatility.
Why BAC works:
- Low Share Price: BAC’s stock price is generally affordable, making it easy for small accounts to buy 100 shares for covered calls.
- Good Liquidity: Bank of America has a very liquid options market, which is key for smooth trade execution.
- Moderate Volatility: BAC provides enough volatility to make short-term trades profitable but is stable enough for conservative strategies like covered calls.
Best options strategies for small accounts:
- Covered calls for income generation on owned shares.
- Cash-secured puts to collect premiums and potentially buy stock at a discount.
- Credit spreads to take advantage of smaller price movements with limited risk.
Key Factors to Consider When Trading Options with a Small Account
- Liquidity: You want to trade options on stocks with high liquidity to ensure tight bid-ask spreads, which helps minimize transaction costs and allows for easy entry and exit.
- Volatility: Moderate volatility is generally preferable when selling options (e.g., covered calls or cash-secured puts), while higher volatility is better for buying options, as it increases the chances of larger price swings.
- Affordable Options Premiums: With a small account, it’s important to trade stocks with affordable options premiums so you can manage your risk effectively and avoid over-leveraging.
- Defined Risk Strategies: Consider using strategies like debit spreads, credit spreads, or iron condors, which define your maximum risk while allowing for potential profit.
Common Mistakes to Avoid When Trading Options with a Small Account
- Overleveraging: Avoid risking too much capital on any single trade. Stick to defined risk strategies and use a portion of your account to trade options.
- Chasing High Volatility: While high volatility can lead to big gains, it can also result in significant losses. Use risk management tools like spreads to limit your exposure.
- Ignoring Expiration Dates: Be mindful of expiration dates and avoid letting options expire worthless. Manage positions and take profits or cut losses when necessary.
- Not Paying Attention to Liquidity: Trading illiquid options can result in wide bid-ask spreads, leading to higher transaction costs and slippage.
Final Thoughts
When trading options with a small account, it’s crucial to focus on liquidity, volatility, and risk management. Apple (AAPL) and SPY are ideal for their liquidity and flexibility in various strategies. Ford (F) and Bank of America (BAC) offer affordable options with stable price action, making them great for cash-secured puts or covered calls. For those seeking higher volatility, AMD and Palantir (PLTR) provide opportunities for spreads or directional trades.
The right options strategies combined with well-chosen stocks will help you grow your small account steadily while managing risk effectively.