Trading Options Using Fundamental Analysis

To trade on options you need to estimate where could be the future price movement of the asset. The common methods that are used to gauge this are technical and fundamental analysis.Check over here to understand these areas of study.

Fundamental analysis is the approach that is used by those traders who understand the news andthe economic data. In fact, this is one of the bestapproaches that is believed to create forecasts that are accurate. Thetraderformsa view based on what the market is doing fundamentally, and this then lets him establish new positions in the market. The fundamental analysts assess what themarket is doing and then they create an outlook that is used in trading.

Forming an outlook

Trading on options means one should havea bullish or a bearish view on an asset first. This view is then used to trade calls and puts.The fundamental analyst determines which position they can take that would be more appropriate. They look at theeconomic factors that could change the price of the asset which could with be positive or negative.

The factors that the fundamental analyst watches forwill be different based on the asset that he is trading on. Like for example, those who want to trade on stock options will watch the company earnings and the products that the company is likely to be introduced to take a trade.They check the companiesvaluations and if the sale of its productisexpected to be strong then this sendstheprices of the stock up. Ifthat is the case then the stock options trader will start to buy thecompanies call options.

On the otherhand, if thesales of the company are weak then this creates a negative view about thestock in themarket and in this situation the stock options trader will start to buy put options.

Looking at the economic calendar

The events and other fundamentalinformationare made available to thepublic. There are many sites that let you know about these data releases. Some of the data that are watched closely are:

  • Corporate earnings reports
  • GDP
  • CPI and PPI (inflation)
  • Retail Sales
  • Non-Farm Payrolls
  • Monetary policy meetings at central banks
  • Weekly inventory reports
  • PMI (manufacturing)

There are many other economic data that is watched closely by the fundamental analysts,however,these are some of the critical information that is used by the fundamental analysts. The geopolitical events also play a very important role that influences the prices of the asset.

The fundamental options traders use the economic and geopolitical data to forecast the movement of the asset. This lets them place trades using real money.