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Options Fundamental Analysis

In options trading you cannot underestimate the value of analysis. There two kinds of options analysis: options fundamental analysis and Technical analysis. In this article we will cover the basics of options fundamental analysis, so you can continue trading with a better grasp on how the price changes are formed. Unlike, the technical analysis we will focus on macroeconomic data.

Options fundamental analysis stands for a method of analyzing economic, financial, social news and data that can improve or undermine assets' stability and cause price fluctuations. The purpose of fundamental analysis for options is to compare the present value with the prospects of it changing in the future. As a result you can conclude that the asset is under-priced or over-priced and trade accordingly.

 Fundamental Analysis

The focal point of options fundamental analysis:

- Employment Rate

- Economic Growth and Trade Ratio

- Retail sales

- Geopolitical Events and Natural/Technogenic Disasters

- Asset Prices

- State/Company News

- Interest Rates by State/Company

If you want to have a glimpse at country's economy, one of the main points its lay off rate. If the unemployment is low and decreasing it is a strong indicator of good performance of the corresponding currency. The same goes for corporations. If a given company is laying off a substantial amount of its workforce and shutting down stores its stock will surely tumble.

Options Analysis

Gross Domestic Product (GDP) and Trade Ratio should be better than expected if you are looking for a strong indicator of an upward trend. The decrease in GDP and export will cause a weaker currency, and on this assumption you can freely base your long term trades.

Retail Sales are a good indicator of any firm's financial health and prospects. If the IT industry, for instance, is on the upward trend with strong sales, the corresponding indices will see a rise in value. And if mining in US is struggling, mining companies' stock will surely be affected.

Adverse situations concerning Geopolitical Events and Natural/Technogenic Disasters will definitely hit hard on the value of any country's/company's assets, because of the importance of decisions taken on summits, or the inability to continue production and sales on the usual scale, and financial losses due to infrastructure destruction. The intrinsic valuation will change as well, as the events are out of the ordinary and create a volatile market.

Commodity prices are considered a safe heaven, but they are influenced by various factors like production, lack or abundance of offer, political crisis and other events. Any asset price represents the value traders place in the company, and it may not always correspond with real situation. It can be under- or over-valued, and with a detailed information you can compare the real value of the asset with where it should really be and base your investment on this prediction.

State/Company News are a major source of volatility, as any essential tidings will cause the prices to change. Always keep a firm hand and look for insider tips to be more profitable and enter into trade before everyone else does.

Interest Rates offered by state banks and annuities of companies' stocks are also a prime criteria that provides an insight into their well-being. High deposit rates alike in Brazil cause an influx of foreign investment, but the high rates provide an unsustainable situation for lenders. If the interest is low or even negative, with the prime example being Switzerland, means a safe heaven for investors wiling to preserve their cash in a stable and non-volatile environment. As for the companies, the higher the annuity it offers, the stronger the company's standing is in the market, so its stocks are sure to reach newer heights.

To sum it up, professional options fundamental analysis requires constant and in-depth analysis of a variety of components to receive a complete picture of any financial market. But with its correct perception you can reap unlimited benefits and improve your financial standing over time and that is what you, as a trader, strive to achieve.

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