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Option chain volume analysis

Ask yourself why exchange doesn't provide you the volume data of options why they try to keep this data secret and nobody talks about it because they know the importance of volume data to analyze the option chain analysis.

Option chain volume analysis

  1. Retail traders don't understand the importance of volume in option chain analysis because there is no information available.
  2. Low volume with high open interest indicates the professional trader's position
  3. High volume with low open interest shows the retail investors positions
  4. The reason for low volume and high open interest is due to the large order position by professional traders.
  5. They buy or sell their orders with minimum no of trades but in large quantities from retail investors
  6. But retail investors buy or sell their orders in small quantities causing large volume instead of open interest.
  7. Professional traders sell their options when the price reaches a certain level they already placed their order in the system for the day
  8. Professional traders start to accumulating options from the retail traders when all are bullish on the market and the market is making new highs.

 

  1. In option chain analysis On-call side if the volume is low open interest increases unusually high and the price is decreasing implied volatility is high from the previous day professional traders are bearish in the market
  2. Professional traders are writing the call options and retail traders are selling the call options

 

  1. In option chain analysis On Put side if the volume is low open interest increases unusually high and the price is increasing implied volatility is low from the previous day professional traders are bearish in the market
  2. Professional traders are buying the put options and retail traders are selling the put options.

 

  1. If these parameters are justified in your analysis then the market will move down

 

  1. In option chain analysis On-call side if the volume is low open interest increases unusually high and the price is increasing implied volatility is low from the previous day
  2. Professional traders are bullish in the market they are buying the call options and retail traders are selling the call options

 

  1. In option chain analysis On Put side if the volume is low open interest increases unusually high and the price is Decreasing implied volatility is high from the previous day professional traders are bullish in the market they are selling the put options and retail traders are buying the put options.
  1. If these parameters are justified in your analysis then the market will move up.
  2. Volume data is always relative to its previous day volume
  3. If you record and compare the previous 5 days volume data it is easily identified today volume is high - low or average.
  4. Comparing this data you will easily find out professional traders are bullish or bearish on the market

Learn Option chair premium decay from this link

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Saturday, 22 February 2020

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