Secret 55OPTION ANALYSIS CAN BE EASY
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Every option investor should do some options analysis before
entering a trade, but you do not need to be a math genius to
do so. There are many option analysis software programs that enable
you to do your option analysis easily.
Of course, some software programs are quite complex, and
you can easily be lost in the trees. The secret is to keep things as
simple as possible.
Here are the factors to look at before entering a trade:
1. What is the fair value of the option? Make sure you buy
undervalued and sell overvalued.
2. What is your probability of profit if you hold the position
to expiration?
3. What is your probability of hitting a stop-loss or profit
goal during the life of the option? Here you will need a
simulator.
4. What is the delta? If you are an option buyer, you want a
higher delta. If you are an option writer, you want a lower
delta.
These four factors are all you need to compare different option
trades to determine the best play or if you should pass on a
trade. A program like Option Master® will do all four tasks easily.
With this information, I can make my decision, and if I cannot
get a statistical advantage in a trade where I have an under or
overvalued situation or a good risk-reward picture, I pass on the
trade. You need to gain an advantage in the markets. If you cannot
get that advantage, pass on the trade.
VOLATILITY IS THE KEY TO DETERMINING
THE FAIR VALUE OF AN OPTION
Every option investor should do some options analysis before
entering a trade, but you do not need to be a math genius to
do so. There are many option analysis software programs that enable
you to do your option analysis easily.
Of course, some software programs are quite complex, and
you can easily be lost in the trees. The secret is to keep things as
simple as possible.
Here are the factors to look at before entering a trade:
1. What is the fair value of the option? Make sure you buy
undervalued and sell overvalued.
2. What is your probability of profit if you hold the position
to expiration?
3. What is your probability of hitting a stop-loss or profit
goal during the life of the option? Here you will need a
simulator.
4. What is the delta? If you are an option buyer, you want a
higher delta. If you are an option writer, you want a lower
delta.
These four factors are all you need to compare different option
trades to determine the best play or if you should pass on a
trade. A program like Option Master® will do all four tasks easily.
With this information, I can make my decision, and if I cannot
get a statistical advantage in a trade where I have an under or
overvalued situation or a good risk-reward picture, I pass on the
trade. You need to gain an advantage in the markets. If you cannot
get that advantage, pass on the trade.
VOLATILITY IS THE KEY TO DETERMINING
THE FAIR VALUE OF AN OPTION