Technical indicators

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Technical indicators

  1. 1. Technical IndicatorsBy: www.options-trading-education.com
  2. 2. Three technical indicators to watchin options trading are price,trading volume, and open interest.We focus on price because theprice of an option is what we buyand sell at.By: www.options-trading-education.com/11068/technical-indicators/
  3. 3. Option price reflects movement ofthe underlying equity. Volume andopen interest are used as predictorsof where price will go next.By: www.options-trading-education.com/11068/technical-indicators/
  4. 4. Whether the trader is engaging incovered options trading oruncovered options trading, thetechnical indicators of currentprice and movement, daily tradingvolume, and the day’s end openinterest will help guide tradingdecisions.By: www.options-trading-education.com/11068/technical-indicators/
  5. 5. The price of the underlying equityand its estimated future price arethe basis of profit in optionstrading. However, strike prices andspot prices in options trading areonly the beginning of what thetrader needs to follow in order toprofit.By: www.options-trading-education.com/11068/technical-indicators/
  6. 6. Price movement predicts futureprice. The pattern of pricemovement is a strong technicalindicator. Whether the traderengages in a long options strategyor a short options trading strategythe ability to read marketturnarounds is crucial.By: www.options-trading-education.com/11068/technical-indicators/
  7. 7. In United States versus otheroptions trading the trader canexecute options contracts beforetheir options expiration dates.By: www.options-trading-education.com/11068/technical-indicators/
  8. 8. If the trader is in the money on anoptions contract and sees a marketturnaround coming he or she maybe wise to execute the contract andprofit before the market changesand the contract becomes out ofthe money.By: www.options-trading-education.com/11068/technical-indicators/
  9. 9. Although the vast majority oftraders watch price activity overtime as a guide to how the marketwill price options and theirunderlying equities the two otherindicators of volume and openinterest are important.By: www.options-trading-education.com/11068/technical-indicators/
  10. 10. Of the three technical indicators,market volume tells you how manytraders are interested in theunderlying. A good rule of thumbis that equity movement up ordown is only predictive ifaccompanied by large increase intrading volume.By: www.options-trading-education.com/11068/technical-indicators/
  11. 11. There are times when a handful oftraders and investors will drive theprice of a stock, commodity, orfuture up or down. Good riskmanagement in options trading isto be skeptical in this situation.By: www.options-trading-education.com/11068/technical-indicators/
  12. 12. When no one else jumps on boardit is a good time to suspect marketmanipulation or just bad trading.By: www.options-trading-education.com/11068/technical-indicators/
  13. 13. It is not all that uncommon to seean equity driven up in price in sucha manner only to see it dropprecipitously when the tradersinvolved cannot get othersinterested and run out of money.By: www.options-trading-education.com/11068/technical-indicators/
  14. 14. No matter what kinds of optionstrading you are involved in payingattention to changes in marketvolume is useful.By: www.options-trading-education.com/11068/technical-indicators/
  15. 15. Open interest is the mostneglected of technical indicators.The open interest of an option isthe number of contracts, buy orsell, put or call, on the option thathave not been exercised or off setby an opposite contract.By: www.options-trading-education.com/11068/technical-indicators/
  16. 16. Open interest is useful in tworespects. It is an indicator of thevolume of option trading asopposed to trading of theunderlying which is marketvolume.By: www.options-trading-education.com/11068/technical-indicators/
  17. 17. Open interest helps answer thequestion what is an option worthin that it is also a good predictor ofhow large or small the spreads willbe between bid and asking pricewhen you decide to buy or selloptions.By: www.options-trading-education.com/11068/technical-indicators/
  18. 18. Open interest and market volumeare good technical indicators ofwhere an equity price and theoption price are going.By: www.options-trading-education.com/11068/technical-indicators/
  19. 19. In your options trading for theNew Year consider market volumeand open interest as goodsupporting indicators to equityprice when predicting where themarkets will go.By: www.options-trading-education.com/11068/technical-indicators/

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