OPTIONS CZAR HELP - MARKET TRENDS
As we mentioned before, Options Czar reads data that contains the prices for all the options that are offered in the CBOE market at a given time. It was also mentioned that the market expectations for a specific stock are priced into the listed options.
Therefore, the market information that Options Czar extracts from the market data is the following:
- Implied Volatility
- Average Implied Volatility
- Stock trend
Implied Volatility
| Given that the stock price volatility is priced (or should be) into each one of the listed options, the user can select an option and calculate the three-month volatility that was used to calculate its price. To do this, perform a manual operation. For example, buy 1 AAPL July 06 50 Call. The screen should look as in the screenshot to the right. |
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| With the call selected, choose Read Implied Volatility from the Tools menu. A message will appear (see screenshot to the right), showing the implied three-month volatility for that option. |
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Average Implied Volatility
| Options Czar uses the implied volatility for all the listed options to calculate an average volatility for the underlying asset. It also uses the downloaded historical data to calculate the historical volatility. This number is used to draw the normal distribution that appears in the Profit/Loss chart. It is also used for the development of strategies. To read the average volatility, select Read Market Volatility, from the Market Tools menu. In this case, a message will appear (see right). |
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Stock Trend
| Options Czar will estimate the market attitude towards a specific stock (bullish or bearish) by taking the prices from all the listed Calls and Puts and determine which group is relatively more expensive than the other. To read the Stock Trend, select Read Stock Trend, from the Market Tools menu. In this case, a message will appear as below. |
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| This should give an investor an idea of what the market is expecting from a stock price and how it is pricing the Options accordingly. The comparison numbers give an additional idea on how higher is the premium for one of the option types (calls or puts). Please take this information as any other stock market information. In other words, don't bet the farm on something like this. |
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