watching option chains to help trade stocks/indexes

Discussion in 'Trading' started by 1a2b3cppp, Oct 28, 2008.

  1. I hear that watching options can be more useful than any indicator. Can someone help shed some light on this subject for me? What kind of things is one looking for in the options to help determine what the underlying stock may do?
  2. my knowledge is limited but you can look at put/call or call/put ratios, volatility, max pain, you can look for "pockets" of openinterest at certain strikes (either put or call if your bearish or bullish) to get an idea of where the stock is possibly going but this is all objective and i doubt it would help you for day trading. Position trading possibly...
  3. I think that the open interest is a pretty telling indicator.

    ie, if you look at a stock and the open interest in puts is large it means people are writing lots of puts on the stock because they believe it isn't going down.

    I'd say the same thing for calls, if suddenly there were lots of calls being written, whomever is writing them probably believes that the stock is going to be flat or down within the expiry of the option.