Options Trading Tools

There are a variety of options trading tools that will allow you to enjoy successful options trading. The four tools that are crucial for creating strategies include chains, graphs, volatility studies and Greeks. Without the use of various options trading tools you are merely gambling your money away on your investments. Understanding these tools and their various benefits will allow you to make smarter investments and realize much higher returns.

Chains provide you with strike prices as well as premiums for options. Premiums are the actual prices that you will pay for strike prices and strike prices are the prices at which you will buy or sell your options. You should also understand the spread which is the difference between the ask price and the bid price. This is also included on the option chain.

Option graphs are very important in options trading as well and can be a vital options trading tool. Option graphs are visual tools and most traders respond fairly well to visual trades. Options graphs will who you the value as well as the outcome of various trades under different market conditions. Different things will affect the outcome of a trade. For instance, a change in the implied volatility will affect the outcome as will the remaining time until the contract expires. The price change of underlying assets also helps to determine the outcome and all of these things together can be charted.

It is important that you analyze volatility studies before an option position is entered. Generally, you should buy low and sell high. Implied volatility can be charted both in relation to historic volatility and recent historical data. Options traders can get a general idea of the direction that a specific option is traveling and anticipate any future movements by using the volatility chart.

Greeks are important for a number of reasons. They are critical for use in determining various factors that may affect the value of a specific contract. To calculate the value of the option with regards to movement of the spot price, Delta is used. Gamma on the other hand, calculates the relation of Delta to the movement in underlying spot prices. Vega calculates the value of options in relationship to implied volatility while Theta is the actual loss in the time value as each option reaches its expiration. Finally, Rho determines the value of an option in relation to current interest rates. When used together, Option Greeks will determine the overall value of the option contract.

Different types of options trading tools can be found at a number of different places including many online sites that offer information and resources for options trading. You may also want to consider soliciting the help of a financial advisor or consultant, preferably one who specializes in options trading. There are a number of options trading software programs that are currently on the market, although these can be very expensive in many cases. You may however, find that some online brokers offer specific software programs for free with a new account. Be sure that you check to see what services and features are offered with your brokerage account if you are planning to trade online.

Software programs and financial advisors can also be considered valuable options trading tools as they can help you to make the right investments and know when to hold your investment and when to sell. In order to trade successfully you will need to familiarize yourself with the various options trading tools that are currently available and see which ones work best for your specific trading strategies. Do a bit of research on your own to learn more about options trading before you begin investing.

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