Unless I'm mistaken, buying/selling of options requires you to choose a fixed time frame in which you think how the option will perform. How is technical analysis used here then especially if volatility increases/decreases unexpectedly during the time frame in which you lock in your option trade?
Can technical analysis be used for options trading?
- Thread starter nxt7
- Start date
I started learning option 3.5 years ago, you betcha you can use TA on them, you can use on underlying and if you have the software to do so or make it yourself, you can chart options and use TA directly on them like futures' spreads. But I most use the TA on the underlying for now and making comparisons between options being Prem or Discounted in relationship of underlying chart patterns or retracements. It has been very fun.
The dog (underlying) wags the tail (options).
Any technical analysis is done on the underlying.
Any technical analysis is done on the underlying.
The dog (underlying) wags the tail (options).
technical analysis is done on the underlying is paramount. In theory an options trader should be able to forecast the underlying
rmorse
Sponsor
How would you go about doing that?
of course technical analysis is used in option trading
Obviously, if one were to employ 'technical analysis' one would employ it on the underlying rather than attempting to employ it on option prices.
Of course it doesn't really make any difference.
I hope, at this late date, no one involved with the stock market believes that technical analysis has any value in making predictions about the underlying anyway.
Study after study after study has demonstrated that technical analysis is no better than random chance in predicting the price of a stock. i.e. flip a coin... it's just as good.
e.g.
http://userfiles.talniri.co.il/ForumFiles/444898.pdf
There are literally hundreds of such articles.
Of course it doesn't really make any difference.
I hope, at this late date, no one involved with the stock market believes that technical analysis has any value in making predictions about the underlying anyway.
Study after study after study has demonstrated that technical analysis is no better than random chance in predicting the price of a stock. i.e. flip a coin... it's just as good.
e.g.
http://userfiles.talniri.co.il/ForumFiles/444898.pdf
There are literally hundreds of such articles.
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Even though one would use TA on the underlying, it can help to chart the strike or spread difference in the options to set limit orders that correspond to specific price levels in the underlying.
rmorse
Sponsor
Because of variations in Skew, IVol and time decay, that might not be the best way to simulate forward prices after a price level change. We offer Silexx OEMS. It allows you to add a column called Call or Put Theo. You can then change the stock price, raise or lower Vol and get an estimate based on your assumptions as to forward option prices if...I find it very useful to estimated the value of spreads or single options after an event like earnings or after the passage of time with a stock move.