Options Trading Software

Options Trading Topic: Option Trading and Analysis Software Packages

Dear Options Trading FAQ:

I enjoy very much reading your comments on options trading. Since I am doing option trading without a computerized analysis program, I think I am handicapped in this battlefield. Could you recommend some affordable software packages that are good to analyze options? Thanks,

Handicapped Option Trader

Dear Handy Options,

Sometimes it’s better not to have the computer around to mislead you. From what I read in the ads, all I need do is to buy the package, run it and make tons of cash. I guess all the others buying the package will do just as well, but there is plenty to go around, isn’t there? ;) Seasoned players will agree on several points about computerized packages and trading systems.

The options trading systems that do really work, only do so until they are discovered. When enough people pile onto any system, the self-defeating factors set in. It is at that point that the cash flow of the program’s originators switch from trading to selling the system. The old Wall Street axiom is that if a system really works, why would someone be willing to sell it to you? They would be jealously guarding the secrets of it for themselves.

There are basically two types of systems that you’ll be looking at: 1) The open system and 2) The Mystery Box. Serious players will put up money only when they can see and understand the theory behind the signals that are generated. This type of open system would include the technical packages that flash buys and sells when certain parameters are hit. As a user, you will know in advance just what triggers the bells and whistles. The amateur trader is more fond of the simple magic box formula. A guru or his software will generate trading signals which you are to blindly follow. The exact parameters behind the thinking is secret. A stellar track record is usually supplied with the demo package which, along with the guru’s reputation successfully sells the package to the trader looking for big gains with little effort.

I would personally favor the first type of package over the latter. I feel better knowing that it is the Wilder RSI flashing the sell signal, rather than the mood of the so called expert. But then again, their track records are much better than mine, so maybe I shouldn’t be so skeptical .

I’ve gotten off the track - you actually asked about option valuation tools, not trading systems. Sorry.

Getting down to particulars, I recommend various packages depending on what you want to do. Are you looking to analyze the underlying stocks themselves or their options? For stock trends, the champ is METASTOCK. I was a beta tester for the windows version, so I’m partial to the program, but many have told me good things about it. Warning: This may be more than you want to spend. It will entail securing a source of data as well. I used DIAL DATA with it. They are a great value compared to some other larger name sources.

As for options analysis, all the programs run some variant of Black Scholes or compare the current premiums to the theoretical value. There are quote packages that incorporate this as well. Again they may be too expensive. A popular outfit for option valuation studies is OPTIONVUE. You can call and ask for a demo disk or download it from their WWW site. They have an OPSCAN service available from their bbs which lets you program filtering screens based on factors you select (e.g. Show me all stocks whose options today exceeded twice their average trading volume). We use this a lot and is highly recommended.

The CBOE just came out with THE OPTIONS TOOLBOX which lets you construct and test option strategies. I haven’t looked at it yet but it seems interesting. Inexpensive, too, at $29.95. Call 1(800) OPTIONS.

There really are so many resources for you to look into. All sorts of price ranges and depth of detail. I’ll let the others suggest some of their favorites.

Good luck and trade well! Remember, an educated options trader is the best options trader. Browse these books books on trading options.

Tags: Options Trading, Options Software

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