Best Cheap Stocks for Options Trading

The market as a whole is off to a volatile start in 2022. While not ideal, this does create several buying opportunities for investors on all ends of the spectrum. Especially those with less buying power, this is the perfect opportunity to buy in on some quality stocks.

Cheap stocks are usually an indicator that something is wrong with the firm, however this isn’t always the case. We have researched and compiled a list of cheap but quality stocks that are good buys right now. Furthermore, you can maximize this opportunity in the market by trading options. 

The Best Cheap Stocks for Options Trading

Let’s review some cheap but quality stocks that can be great to trade options with and add to your portfolio. Remember, you may want exposure to this space, but you don’t want to start big. Build your portfolio slowly and with wisdom.

This is a Spanish multinational financial services company and the 16th largest banking institution in the world. Within the last five days, SAN stock has seen a decrease in share prices from selling at $3.23 per share to now $2.82 per share. 

However, given the nature of the present economic conditions, we believe SAN is a buy. The business is diversified within itself which provides protection to investors. The stock also offers a combination of exposure to high growth emerging banking markets as well as to somewhat stable developed banking markets. Furthermore, stocks from financial institutions are favorable during inflationary periods. 

Analysts believe that there is still room for growth and for SAN to improve their profitability. Therefore, we recommend taking a long position for SAN stock.

Mizuho Financial is one of the largest financial services companies in Japan. Their stock has been on a downward trend since the beginning of the year and now sits at $2.16. It is important to note though that the banking environment in Japan has been struggling the last few years which can explain the consistently low share price. However, the company has begun taking initiatives to move towards digitizing its business to cut costs, improve profitability, and have an edge over its competitors. 

Overall, we foresee MFG continuing to make improvements within their business along with the overall environment for banking in Japan to improve. There is potential for MFG to grow and gain market share in new areas of financial services. Our consensus is to go long on MFG stock. 

Telefonaktiebolaget LM Ericsson, or more commonly known as Ericsson, is a Swedish multinational networking and telecommunications firm. Their stock price currently stands at $7.58 with a 52-week range of 7.30-13.40. While having received some disruptive press recently, due to a 2019 incident, technical and fundamental analysis points to the company being in good standings. Analysts believe that the financial health and growth prospect of the company shows potential to beat the market. Given the recent news that has been affecting the share price, we believe this is a great opportunity to buy in on ERIC stock. 

Sirius XM is an American Broadcasting company with a $24.44 billion market cap. Recently, the stock has been underperforming compared to the market and currently stands at $6.11 per share. Despite reporting subpar first quarter earnings, the company believes the business will pick up in the second half of the year. With much of the company’s downfalls being related to the aftermath effects of the COVID-19 pandemic, changes that need to be made in order to improve the business are well within reach. 

As disruptions in their supply chain and disruptions within the auto industry ease up, we can expect SIRI to rebound. Because much of this stock’s downfall is related to outside factors and aren’t due to internal factors, we believe that this is the perfect opportunity for investors to maximize the dip and go long on SIRI. 

LLoyds Banking Group is one of the UK’s largest financial organizations. Reporting strong first quarter earnings as well as strong growth in income and margins, we believe the company’s current stock price does not accurately represent their intrinsic value. Their stock currently stands at $2.11, with a 52-week range of 2.01-3.00.

With strong potential for growth and having an above average valuation score according from several analysts, we foresee LYG stock to correct itself and bounce back.  

How to Trade Options

An option is a contract for calls or puts. A call option gives the buyer the right (but not an obligation) to buy a stock at a certain predetermined price before a predetermined date. A put option gives the seller a right (but not an obligation) to sell a security at a predetermined price before a predetermined date. 

Before you can start trading options, you will need to open an options trading account which requires a larger amount of capital to open up compared to traditional stock trading accounts. Once your account is set up you’ll want to determine your investment objectives, strategy, and make yourself a plan. Remember to never invest money you aren’t prepared to lose. With your plan in mind, now is the time to choose which options to buy or sell and at what strike price. This may take some time to do your due diligence and research. The last step is to determine what time frame you want  to work with. 

Why Do Cheap Stocks Help With Options Trading?

Cheap stocks can help reduce risk and open more opportunities for investors when it comes to options trading. For one the cheaper the stocks you are trading options with are, the smaller the buffer is to breaking even. Also, the stakes will be lower meaning if things don’t go your way you will lose less money. 

Furthermore, as someone new to options trading or with less buying power, picking cheaper stocks may be in your favor as options trading in general is extremely risky. If things do go your way, the potential to make greater returns through options trading is high. 

How Can Options Diversify Your Portfolio?

Diversifying your portfolio by using options can be beneficial to investors focused on the long term. Investors will often use options as a hedge to lower their risk exposure. This is done by finding an options contract for a security that is inversely correlated to the asset they are trying to protect. When done correctly, this can be extremely beneficial to investors in the case of unforeseen events.

Frequently Asked Questions