Sorry brags...i was thinking you were new to Option Trading, but it is just the Terminology that is confusing to you.
I posted some Charts before this post thinking i could help you Understand your First post....Sorry if i misunderstand what you were asking.
It seems after your last post you are just confused with the Terminology.
Last edited by sandptrader; October 4th, 2015 at 04:11 PM.
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TRIN is the inverse of what you normally see: a low value corresponds to highs in price and vice-versa.
The formula is the ratio of the number of advancing/declining stocks compared to the ratio of the volume of advancing stocks to the volume of declining stocks.
So if the volume ratio is higher than the number of stocks ratio, the overall indicator value is lower (higher denominator). That means that volume is going disproportionately into rising stocks compared to their number, so the balance is toward rising volume. The opposite is true when TRIN is high: the volume ratio is proportionately lower than the number of stocks ratio, so the balance is toward stocks with more declining volume.
The idea is that if the reading is particularly high, selling has gone on too far and a change is due; if it is particularly low, buying has gone too far. Note that "overbought" and "oversold" are conditions that can last a long time, not pinpoint signals.
Often the indicator scale is inverted, so the plot looks like a normal indicator.
Don't get too hung up on indicators, by the way. You don't get an edge from something that everyone knows about. An edge can come from your own interpretation of what is happening, but not from a number on a chart....
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ok thanks Bob...just wanted to confirm the contradiction in the tutorial so I can get it right. I appreciate the advice...right now I just want to get a general understanding of all aspects of the market.
Last edited by brags; October 7th, 2015 at 07:51 AM.
This is a Final Update of that OCT 540 Call Trade that was posted on 10-2-15.....I am late on posting this..... the Charts show what happened up until the Expiration with Closing Price of the 540 Call.
On 10-2-15 paid $875 for 540 Call.
On Expiration it was worth $3,092
The Option was as low as $275 on 9-29-15
Also as Low as $345 on 10-8-15
It Closed ITM-In the Money on 10-16-15.
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Thanks for following up on this. It's all making more sense to me now...even the terminology
...calling away stock and putting protection
So looking at the charts...amazon really had a good run there...normally 10 days left to expiry for an otm would not be the best of strategies correct? Especially considering it was prior to an earnings report where it was expected that amzn was going to miss their target. Unless one was just trying to capitalize on a short term bullish trend and the object was to get out before the earnings report. Would the price of the option at the time of purchase reflect the missed earnings expectations? If one were bullish on amzn regardless of the speculation, then it would have been better to get an option with a later expiry, since the stock really jumped up after amzn reported better than expected earnings. The NOV 540 option is currently $6,640...not sure what it was selling for back on Oct.2....but a 607.50 November 2015 with 26 days to expiry is $1,230
I am currently reading the following book that was recommended by an options tutorial provided by my bank.
Attaching Chart of November 540 Call. Anytime you are using a Short term Instrument such as Weekly Options you are taking Risk of Losing All of the Premium you Paid for the Option...there is no time for a recovery,So make Sure you are willing to take that Chance if using that Strategy.
Last edited by sandptrader; October 25th, 2015 at 11:04 PM.
Since selling options over earnings exposes the sellers to large risk, i.e. the stock can make large moves as witnessed by AMZN, implied volatility (IV) increases as the earnings date gets closer. Thus, the price of the option increases in order to compensate the sellers for the additional risk. I may be wrong, but I believe the options with expiries closest to the earnings date will have higher IV than those with expiries further away (never tested this and don't do earnings plays). After earnings, the IV usually collapses and if the stock does not make a large enough move, then the value of the option decreases. Thus, you can lose money even if you get the direction right.
Not sure if the price of the option will reflect the expectation of a missed earnings report. IV on both calls and puts would be higher due to the known catalyst (earnings date) and the IV on the put options would probably be higher than that of the calls (after 1987 insurance coverage became more expensive). Keeping the aforementioned in mind, you can compare IVs across a range of options to determine whether the expectation of a missed earnings report is "priced in".
Whether or not it is better to buy an option with more time to expiry depends on your strategy and your plan with the trade. Just remember that time value decreases quite rapidly once the time to expiry is less than 30 days and OTM options will lose a lot of their value really fast.
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