You must understand the meaning of all of these to be able to pick a profitable option. Stop Googling “how to read stock options” and read on, we’re about to explore all the relevant details.
Importance of Reading Options Chain
Before we move on to how to read a stock chart for day trading, let’s explore why it is important to make calculated decisions as a trader. The goal is to maximize profit with every trade.
You must thus pick options that are likely to move in the direction you want them to so that you can execute them when the time comes.
To do so, you must not rely solely on speculation but instead focus on current metrics. Let’s explore how to read charts trading and options (call and put) for maximum returns on every investment!
What You Need to Know About Reading Options Chain
When reading an options chain, you’ll come across the following “columns” that you need to know about:
- Symbol: Every option, as with the underlying stock, has a symbol associated with it
- Strike Price: This is the price that you agree to buy/sell a stock when acquiring an option
- Last Price: This is the price at which a trader most recently traded the asset
- Change: This shows the difference between today’s last price and yesterday’s
- Bid: This is what a buyer is willing to pay for the option
- Ask: This is what a seller demands for their option
- Volume: It refers to how much an option is being traded in a given day
- Open Interest: This refers to the outstanding options
Next up, you might also want to learn how to read graphs for stocks so that you can see how these factors affect the real-time price fluctuation of stocks and options.
How to Read RSI Indicator
Learning how to read stock option charts will only be half as effective unless you master the indicators that go with them. The Relative Strength Index (RSI) shows whether an asset is undervalued or overvalued.
RSI value fluctuates between 0 and 100. If the value crosses 70, it means that the asset is overbought, or overvalued. The converse is true if the value dips below 30. If you’re looking for a lucrative investment opportunity, try to buy into the trade when the asset is oversold, or undervalued.
This way, in the long run, the asset will gain value and reward you richly.
How to Read EMA Indicator to Identify Trends and Market Momentum
Also, moving forward with how to read trade charts, let’s take a look at EMA indicators. Wondering how to read stock patterns using EMA?
No worries! It’s quite simple actually: if the asset’s value crosses the EMA indicator’s curve, then it’s prime time for buying. If the opposite is true, you’d be better off selling the given asset.
Be sure to use EMA indicators in conjunction with other indicators as well for better input about the asset prices. Also, if you know how to read VIX index, you can further use that information to make profitable trades.
Mastering Tape Reading: A Guide to Reading Stock
No, we’re not asking you to revive the ticker tape technology from the 60s, but rather, to master the underlying principle. Learn how to read the tape day trading — analyze the volume and price of an asset to see when it suits you to buy into a trade for maximum profitability.
If you learn how to read the tape for day trading, you’ll be able to predict price movement for the asset and thus make informed trade decisions.
Buy low, sell high — that’s how things have always been!