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What are the Different Types of Options Trading Tools?

By Dana DeCecco
Updated May 16, 2024
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Successful options trading requires an arsenal of options trading tools. The different types of options trading tools are chains, Greeks, graphs, and volatility studies. These four tools are the most important for creating the various option strategies. Without these tools, options trading is nothing more than gambling.

Option chains provide strike prices and option premiums. The premiums are the prices paid for the various strike prices. The strike price is the price at which the contract can be exorcised.

The spread, which is the difference between the bid and ask price, is also on the option chain. Volume and open interest of each individual option can provide the trader with market sentiment information. Option chains are sorted by expiration month.

Option Greeks are necessary to determine many factors that affect the value of the contract. Delta is used to calculate the the value of the option in relation to the movement of the spot price of the underlying asset, and gamma calculates the relation of delta to movement in the underlying spot price. Vega calculates the value of the option in relationship to implied volatility. Theta is the actual loss in time value as the option approaches expiration, and rho determines the value in relation to interest rates. When put together, the Greeks determine the value of an option contract.

Option graphs can be an invaluable asset in the arsenal of options trading tools. They are a visual tool, and many traders respond well to visual trade interpretations. Graphs will show the value and outcome of the trade under various market conditions. A change in implied volatility will alter the outcome of the trade.

Time until expiration affects option value. The price change of the underlying asset is of prime importance. All of these factors can be charted in graphical form.

Volatility studies should be analyzed before the option position is entered. The general rule of thumb is that one should buy low volatility and sell high volatility. Implied volatility in relation to historic volatility and in relation to recent historical data can be charted. The option trader can get a sense of the general direction and anticipate future directional movement on the volatility chart. These different types of options trading tools are available from various sources.

Advisory services also might be considered an options trading tool. Advisory services are available by subscription. Options trading software can be quite expensive to purchase. Software might be offered by the options brokers for free with an account. Many software programs are available for free on various websites.

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