Charting Option Chain

[lwebb]

I'm just getting into Options and would appreciate some pointers about the relationship between stock price and its effects on the options chain. The best way this could be observed it seems to me is to chart the changes over time.

Unfortunately I can't find any such resource. Any pointers appreciated. I'm particularly after clues to how out/in/deep-in the money options react to underlying price changes.

 

[garethb]

There is indroductory information on Options on this thread http://www.trade2win.com/boards/showthread.php?t=8414

It is useful to have a tool for drawing payoff diagrams for various options and combinations. The Peter Hoadley options evaluation tool is free and draws payoff diagrams you can then cycle the evaluation date, change volatility, etc. to see how the chart is effected. You can also save one option and enter another to compare how different options in the chain react differently to changes. There is a link on the above thread to his site. Probably best to use the software in conjunction with a good book on options. The Lenny Jordon book (also link on the thread above) is a good intro. Natenberg or Cottle books are a bit much for a start point but are well worth reading after.

Good luck.

 

[Interactive Brokers]

Interactive Brokers (IB), the technology leader in global brokerage services, has launched a new daily options commentary that may help you. For example, the IB Commentary provides investors and traders with information that reflects the market's expectations of future price movements.

The IB options commentary includes seven tables of options market statistics, supplemented by a written summary of the day's highlights. The tables include statistics for the top 20 issues regarding: implied volatility, volatility gainers, options volumes, options volume gainers, implied/historical volatilities, put/call ratios, and call/put ratios. A full explanation of the commentary indicators may be found on the options commentary page on our home page www.interactivebrokers.co.uk

Interactive Brokers will continue to add more indicators as well as statistics from around the world. The IB Options Commentary statistics will be posted to the IB website each trading day from noon to 4pm ET, every hour on the hour, and will be available to the public. In addition, Interactive Brokers customers will be able to receive all the Options Commentary statistics in real-time through the IB Trader Workstation.

 

[spreadrisk]

Iwebb

There are NO quick lessons in understanding Option Pricing.
You HAVE to understand the effects of Implied Volatility on the price.

It's a steep learning curve.

For instance...
Where the underlying is rising gently, the Implied Volatility (IV) will reduce, effecting all options for the underlying.
Where the underlying is falling rapidly, the IV will increase.

You need to know about the various IV curves, how the near term IV curves, differ from the far month IV curves.

Before you can trade Options, you need to do plenty of study.
Ask many questions.

Good luck.

 

[spreadrisk]

Also if you haven't already got the "Options Strategy Evaluation Tool" from Peter Hoadley, get it and play with it. (the free tool)...

http://www.hoadley.net/options/strategymodel.htm

 

[Rvlv]

option guidance free e books

Gentlemen,
please let me know if there are any free e books on option trading for beginners.
how to select best call or put to buy etc
thanks for your time and help
rvlv

 

[grantx]

Iwebb,

Note spreadrisk's recommendation and supplement this with an understanding of the greeks - delta, theta, vega, gamma. These are basically risk indicators showing the degree of exposure of a postion (and where it lies). All will change in response to change in time, the underlying and/or implied volatility.

Implied volatility is the key to understanding options. I can't recommend any basic books. Do a search on Google. Your problem will be trying too separate and get through all the material.

Also, there are plenty of free Excel sheets with option pricing models - search for Black-Scholes, Excel, freeware. Play around with these, experiment and observe.

Any questions, just ask.

Grant.

 

[Rvlv]

options learning

Thank you Grantx.
I begin now.

rvlv