Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

umfan92

How Do You Use Options to Help Predict Price?

Recommended Posts

I say "predict" for lack of a better word since I know it is impossible to predict price. But I've read some articles about this and I'm wondering if any of you look at options to help determine where price is going. What do you look at?

Share this post


Link to post
Share on other sites

Ive looked at put and call strikes noting which strikes have significant open interest. It would seem these strikes do seem to provide some sort of support/resistance until expiry, but to be truthful I havent followed for long enough to deduce any significant findings.

 

Having said that, the logic would seem to make sense.

 

Interesting subject....

Share this post


Link to post
Share on other sites
Ive looked at put and call strikes noting which strikes have significant open interest. It would seem these strikes do seem to provide some sort of support/resistance until expiry, but to be truthful I havent followed for long enough to deduce any significant findings.

 

Having said that, the logic would seem to make sense.

 

Interesting subject....

 

Yeah I read an article about it and it basically analyzed Friday's options to determine a hint of what to expect the following Monday, and I recently found another article that was more long term than just over the weekend. It sounds like it makes sense, but I was just wondering if anyone does this.

Share this post


Link to post
Share on other sites

an increase in an option strikes volume or large increase in overall in open positions may just imply there is increased interest in people protecting a position, or it may mean there is some sort of insider trading going on when it comes to stocks. Depends on how much you are into rumours, conspiracy theories and the like :)

More than anything I think it is a good alert for whats possibly going to be of interest to others - which is what you want. Ultimately you can not really tell if they are just hedging a position, rolling or instigating new positions, and weather or not its a hedge, a speculative position, or even a spread against something else without having a closer understanding of the history of that instrument ....but if there is interest there then it might show more opportunity is brewing. I mean the option instigators (newly opened positions might just have money to burn and no real idea - or they might be a news letter with a lot of subscribers telling them t get into a stock)

 

When it comes to support and resistance - again a lot depends on who holds the instrument and what they plan to do with it - are they hedging speculating, where have they previously hedged etc; I have seen massive open positions been blown through because everyone thought that it would provide support - well, when it did not it quickly became resistance. So you know what they say about assumptions.....

 

 

end line for me is they can be another tool for scanning and looking for opportunity in conjunction with other tools, but dont read too much into any one situation and understanding the history of the instrument can be pretty important in understanding a particular option trade. :2c:

Share this post


Link to post
Share on other sites

Thanks for the reply SIUYA. That really helped a lot. I guess it's just one more thing to add to the technical analysis and fundamentals. I'll probably glance at it when I'm making decisions but I won't give it too much importance.

Share this post


Link to post
Share on other sites
end line for me is they can be another tool for scanning and looking for opportunity in conjunction with other tools, but dont read too much into any one situation and understanding the history of the instrument can be pretty important in understanding a particular option trade. :2c:

 

In my view, "in conjuction with other tools" applies to all indicators. I have not seen an indicator that can be consistently used as a "stand alone".

Share this post


Link to post
Share on other sites
In my view, "in conjuction with other tools" applies to all indicators. I have not seen an indicator that can be consistently used as a "stand alone".

 

I agree with you, ole. It's an interesting topic, though. I think I might make a new thread about it. Some people are very successful using just price and volume alone. In my opinion, indicators are very useful. I'm still new at this so I can't say that I use indicators successfully but I would prefer using indicators instead of just price and volume. I'm curious as to what other people think about this.

Share this post


Link to post
Share on other sites
In my view, "in conjuction with other tools" applies to all indicators. I have not seen an indicator that can be consistently used as a "stand alone".

 

yes....often people think there is just a trigger point - if this does this then buy/sell.

 

They quickly forget the setups required for a successful trigger are either found in a confirmation of a number of factors - be they indicators or market context, trends, fundamental factors etc - what ever floats your boat....

point is that these all indicate something might be happening, some setup for a trade might be occurring - the trigger for taking a trade is often a completely different thing.

Share this post


Link to post
Share on other sites

Major hint: the put/call ratio...

 

More puts than calls: hedge funds are protecting long stock positions

 

More calls than puts: hedge funds are protecting short stock positions

 

That's all for now...

 

 

Luv,

Phantom

Share this post


Link to post
Share on other sites

Thank you, Phantom. I'm not exactly sure I'm understanding it properly though. I think I may be interpreting it incorrectly.

 

If there are more puts than calls, hedge funds are protecting long positions. So I guess that means that they are expecting prices to go up. Or does that mean they are worried prices will go down? So should I expect prices to go up or down?

 

And the opposite goes for the scenario that there are more calls than puts?

 

I know this is a stupid question but I just want to make sure that I understand properly.

Share this post


Link to post
Share on other sites
Major hint: the put/call ratio...

 

More puts than calls: hedge funds are protecting long stock positions

 

More calls than puts: hedge funds are protecting short stock positions

 

That's all for now...

 

 

Luv,

Phantom

 

That was the original reason for the research I mentioned earlier. I was looking at the put & call open interest at 3 ATM strikes for Bonds, EuroFX, S&P, Corn, Gold and Eurodollars.I also noted the strikes where OI was significant eg OI in the 10's of thousands where most strikes had OI of thousand or so.

 

If the ATM ratio was extreme, then often there would be a reversal, if there was a healthy bias to one side, then price tended to continue.

 

The general context has to be taken into account (no big surprise eh?). eg if Gold had 99% more ATM calls, it wouldnt reverse. Eurodollars were balanced at the time didn't seem to have any significant

behaviour.

 

In short, it would seem call/put ATM OI seems to give similar results to volume behaviour re extreme reading, and healthy growth.

Share this post


Link to post
Share on other sites
Thanks for the reply SIUYA. That really helped a lot. I guess it's just one more thing to add to the technical analysis and fundamentals. I'll probably glance at it when I'm making decisions but I won't give it too much importance.

 

Yeah! That's preferably right. Thanks for that.

Share this post


Link to post
Share on other sites
...I'm wondering if any of you look at options to help determine where price is going. What do you look at?

 

Could have a look at this:

 

Leavitt Brothers: Blog

 

 

There's a guy who publishes the situation and his calls on a regular basis (before expiry).

He also explains pretty much of his reasoning.

You can judge on your own how reliable it is.

 

(My impression: Not very reliable)

Share this post


Link to post
Share on other sites

op,

Have you heard the old expression “fool me once,… fool me twice,…” ?

Well, the option writer’s goal is to fool you twice.

After banging my head at this same idea (and also playing as a premium seller) many years ago, I would consider anything you find in distributions of premium OR greeks across the array of strikes to be happenstance at best… no reliable quality edge. jmho

Share this post


Link to post
Share on other sites
op,

Have you heard the old expression “fool me once,… fool me twice,…” ?

Well, the option writer’s goal is to fool you twice.

After banging my head at this same idea (and also playing as a premium seller) many years ago, I would consider anything you find in distributions of premium OR greeks across the array of strikes to be happenstance at best… no reliable quality edge. jmho

 

So you're saying there is no correlation between options, and future price? Thanks for the response! I just thought the idea was intriguing but I wasn't sure if it would work.

Share this post


Link to post
Share on other sites
So you're saying there is no correlation between options, and future price? Thanks for the response! I just thought the idea was intriguing but I wasn't sure if it would work.

 

In terms of ‘correlation’, I’m saying some corre but not high enough. Sometimes they can't, but most of the time 'they' can cloak / disguise ratios, etc.

I found some pretty good patterns but they would not play out as often as they did.

There are many other ‘predictive’ approaches requiring a whole lot less work / processing that can make that same claim.

More on trickery... with premium you never can know what you're buying... so you can never really get what you thought you were paying for.

... I too thought the idea was intriguing (still do ) but never got it up to the level of consistency I was after... moved on. Not saying you or someone else can’t… All the best

Share this post


Link to post
Share on other sites
Thank you, Phantom. I'm not exactly sure I'm understanding it properly though. I think I may be interpreting it incorrectly.

 

If there are more puts than calls, hedge funds are protecting long positions. So I guess that means that they are expecting prices to go up.

 

You are right. They have expectation of increasing prices and they are hedging their bets with puts.

 

Vice versa when the ratio is reversed.

 

 

Luv,

Phantom

Share this post


Link to post
Share on other sites
If there are more puts than calls, hedge funds are protecting long positions. So I guess that means that they are expecting prices to go up. Or does that mean they are worried prices will go down? So should I expect prices to go up or down?

 

You are right with being confused.

It is not straightforward.

 

Big funds will obviously not buy puts if they think price knows only up as direction.

They will buy puts if they feel some fear that prices might go down.

And if the prices for protection seem to be ok (look at the premiums in the moment).

And .....

 

Also consider that there are other ways of protecting for downside risk (like going short futures).

 

And then there all kinds of complex option strategies like calendars, straddle ...

 

It once agains sums up: put/call ratio is not really an easy to handle tool.

Share this post


Link to post
Share on other sites

Big funds will obviously not buy puts if they think price knows only up as direction.

.

 

I submit to you and others that there is very little that is "obvious" when it comes to trading the markets.

 

Be careful how you throw that word around in your comments.

 

 

Phantom

Share this post


Link to post
Share on other sites

I would like to thank all of you that replied to this thread. I really appreciate when people take the time to help a beginner like me. I will answer to your responses individually later in the next posts.

 

Thank you to everyone.

Share this post


Link to post
Share on other sites
I submit to you and others that there is very little that is "obvious" when it comes to trading the markets.

Be careful how you throw that word around in your comments.

 

Funny remark given that you are posting things like this:

 

[big funds...] They have expectation of increasing prices and they are hedging their bets with puts.

 

which doesn't seem very prudent to me.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Why not to simply connect you account to myfxbook which will collect all this data automatically for you? The process you described looks tedious and a bit obsolete but may work for you though.
    • The big breakthrough with AI right now is “natural language computing.”   Meaning, you can speak in natural language to a computer and it can go through huge data sets, make sense out of them, and speak back to you in natural language.   That alone is a huge breakthrough.   The next leg? AI agents. Where they don’t just speak back to you.   They take action. Here’s the definition I like best: an AI agent is an autonomous system that uses tools, memory, and context to accomplish goals that require multiple steps.   Everything from simple tasks (analyzing web traffic) to more complex goals (building executive briefings or optimizing websites).   They can:   > Reason across multiple steps.   >Use tools like a real assistant (Excel spreadsheets, budgeting apps, search engines, etc.)   > Remember things.   And AI agents are not islands. They talk to other agents.   They can collaborate. Specialized agents that excel at narrow tasks can communicate and amplify one another’s strengths—whether it’s reasoning, data processing, or real-time monitoring.   What it Looks Like You wake up one morning, drink your coffee, and tell your AI agent, “I need to save $500 a month.”   It gets to work.   First, it finds all your recurring subscriptions. Turns out you’re paying $8.99 for a streaming service you forgot you had.   It cancels it. Then it calls your internet provider, negotiates a lower bill, and saves you another $40. Finally, it finds you car insurance that’s $200 cheaper per year.   What used to take you hours—digging through statements, talking to customer service reps on hold for an hour, comparing plans—is done while you’re scrolling Twitter.   Another example: one agent tracks your home maintenance needs and gets information from a local weather-monitoring agent. Result: "Rain forecast next week - should we schedule gutter cleaning now?"   Another: an AI agent will plan your vacations (“Book me a week in Italy for under $2,000”), find the cheapest flights, and sort out hotels with a view.   It’ll remind you to pay bills, schedule doctor’s appointments, and track expenses so you’re not wondering where your paycheck went every month.   The old world gave you tools—Excel spreadsheets, search engines, budgeting apps. The new world gives you agents who do the work for you.   Don’t Get Too Scared (or Excited) Yet William Gibson famously said: "The future is already here – it's just not evenly distributed."   AI agents will distribute it. For decades, the tools that billionaires and corporations used to get ahead—personal assistants, financial advisors, lawyers—were out of reach for regular people.   AI agents could change that.   BUT, remember…   We’re in inning one.   AI agents have a ways to go.   They’re imperfect. They mess up. They need more defenses to get ready for prime time.   To be sure, AI is powerful, but it’s not a miracle worker. It’s great at helping humans solve problems, but it’s not going to replace all jobs overnight.   Instead of fearing AI, think of it as a tool to A.] save you time on boring stuff and B.] amplify what you’re already good at. Right now is the BEST time to start experimenting. It’s also the best time to find investments that will “make AI work for you”. Author: Chris Campbell (AltucherConfidential)   Profits from free accurate cryptos signals: https://www.predictmag.com/     
    • What a wild year.   AI seems to be appearing everywhere you look, Paris hosted a weird Olympics, unrest continues in the Middle East, the US endured a crazy-heated election, and the largest rocket ever to fly successfully landed in a giant pair of robot arms.   Okay, but what about the $money stuff?   Well, this year we've seen a load of uncertainty - inflation is still biting and many businesses have gone down.   Property has been very fractured, with developments becoming prohibitively expensive, while other markets have boomed.   It hasn't been an easy ride, that's for sure.   However, the stock market has had some outstanding results, and for those who know how to trade, some have done VERY well for themselves.   Some have replaced their incomes. Some have set themselves up for the rest of their days on this planet.   How about you? How did you go? Author: Louise Bedford    Profits from free accurate cryptos signals: https://www.predictmag.com/  
    • U Unity Software stock watch, attempting to move higher off the 22.4 triple+ support area at https://stockconsultant.com/?U  
    • TSSI TSS stock, watch for an ascending triangle breakout above 11.49, target 15 area at https://stockconsultant.com/?TSSI
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.