Is there any way to reverse engineer options data to find good stocks?

If you could tell, from the options market, that a stock is going to pop, then 2 things will happen.

1) The market makers (the ones that does the bid/ask spread) would have their thousands of computers send out orders at 100 per millisecond, way before you had even notice it. about the options pricing moving.

2) Even if you had notice, several other human traders (including me) would be way before you to arb, pressing the options price down, or pushing the stock price up, or vice versa.

Look at this to learn more:

http://www.youtube.com/watch?v=fxw1EFcm3vw
 
There is a book about trading on prices using options rather than the underlying itself, buts its an expert level book...

It involves a fair bit of ongoing participation in the Market too. You can't just buy one or two options and expect the proper results.. its a dynamic process..

Basically it involves taking the various strike prices for starters and knowing that real Market prices may diverge from the normal everyday black-scholes pricing theory. Prices can diverge from traders expectations, because of liquidity issues, or from the shock of unexpected events themselves. That being said, you get into a process where you participate in that scenario where prices diverge from the model.. This process is trying to effectively use options to trade / hedge the underlying in a speculative way based on contingency rather the solely black-scholes, though it does use black-scholes as a starting point..

The book is called - "The Blank Swan: The End of Probability" by Elie Ayache

http://www.amazon.com/Blank-Swan-End-Probability/dp/0470725222
 
Quote from savagemp5:

You sounded noobish.
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I am mad noobish :D

Been trading stocks for years, futures for over a year, and been learning about options for like a week.
 
Quote from cvds16:
----it's impossible to learn options truly through dialog....
----you got to read up on them...
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and then begin trading them, and then "unlearn" most of what you learned from reading books about trading them.....:cool:
 
Quote from 1a2b3cppp:
----Two similarly priced stocks may have totally different option prices....
----that data can somehow be used to discern certain information about stocks....
----people who don't look at options....
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1) You could consider looking at the historical volatility of the underlying stock versus the implied volatility of the underlying's options. :cool:
2) My only concern then is that may prompt you to ask a lot more questions. :(
 
Quote from 1a2b3cppp:

I am mad noobish :D

Been trading stocks for years, futures for over a year, and been learning about options for like a week.
More...

So you are still a noobish on Options derivatives afterall.

I have been in school for the past 15 years, went through 3 different companies and I drove a Mercedes before. Get my point ?
 
Quote from savagemp5:
----been in school for the past 15 years....
----I drove a Mercedes....
----my point ?
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1) Penn or Penn State?
2) C-class or S-class? :confused:
 
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