Technical Analysis

The Option's value depends on the movement of the Underlying Stock. As such, to trade Options:

• First, we determine which Direction the Underlying Stock is most likely to move 

• Then, we select the appropriate Option. 

 Stock Price Movement

To make a profitable trade, we ask 2 questions:
(a)  which stock is going to move, and
(b)  which stock is going to move right now?

There are thousands of stock in the stock market. The key question then becomes HOW do we pick stock that is ready to move up (or move down) NOW? This process is called “Stock Picks”.

Generally there are 2 Stock Picks method:
(1) Fundamental Analysis
(2) Technical Analysis

In Technical Analysis, we determine Stock Price Movement by technical data such as:
• The open, high low and close price for the day
• The daily volume (turnover)
• The performance of the stock price in the last few weeks
• The presence of Support and Resistance lines, etc.

In Fundamental Analysis, we determine Stock Price Movement by analysing the fundamental aspects of the company by asking question such as:
• How is the company performing in terms of sales/revenue/profit?
• How is the current management performing?
• What economic climate is the company facing?
• What is the company’s future earning potential?,, etc

We use Technical Analysis for Options Trading as:

1. Technical analysis has the timing advantage in that it can  tell us what stock are ready to go right now (with fundamental analysis, we might need to give the stock some time to simmer before we see it move)

2. There is less time involved in doing stock research (fundamental analysis may take a longer time)

3. There is less subjectivity involved (forecasting in fundamental analysis can be a very subjective exercise)

Next: Stock Charts ...