i’m a investor but was willing to learn options how can i use fundamental with options.
options are so confusing,inefficient and hard to track every script ? any method to valuate options except Black & Scholes Option Pricing Formula. I just want to know strategies to valuate options just like we do in buying stocks. any help everyone
see,
as far as i know, the options are the most complex part of investing and it not only depends on the direction and premium value but it also depends on volatility and interest rates.
even if you are able to predict the direction of the options market even then the risk of volatility is there which exists.
so, when we are valuing options, we need to figure in the part of volatility in it.
the options are more risky than futures as the integration of common stocks on large scale is futures. but options on the other hand, are way more complex than common stocks and futures.
options appear more lucrative for investors but it is the game of experts of the investing field.
now, coming to your question, valuing stock options with the help of fundamentals is not recommended according to me.
as far as i know, the futures and options are the large scale integrated version of investing with lot size.
so, the institutional investors value the futures and options investing, on the basis of interest rates and little bit of economics such as gdp, trade deficit and other things. these things (gdp, trade deficit and other parameters of economics tell the broad direction in the sense of whether the current situation of the market is favorable for investing or not) these things are not guaranteed measures of valuing the derivatives market. but yes,
you can value options using interest rates.
according to mark faber, bull market starts when interest rates are highest and there is pessimism in the market.
interest rates account for the increase in inflation and inflation on the other hand accounts for supply and demand. when interest rates go up, inflation go up and then the consumer prices go up, which means that there is less money supply in the market and which in return can influence the investing capacity of the masses.
so, interest rates are factored in the black and scholes model of valuing options.
i personally do not trade into options because of the volatiltiy parameter, it is more difficult to bell this parameter for me.
i hope this helps.
will add more on this topic if i get more valuable insights.
happy trading to you.
@smartinvestor, I differ on this. when inflation goes up RBI raises interest rates to reduce money supply so that demand will fall and there by inflation will reduce. Look at what ECB and JAPAN are doing. They kept interest rates negative to push inflation up. Means to increase demand.
@saurabhmahaur790. Since you are an investor my advise is to Learn trading in equities first before you go to options. Options is not for investment but for hedging your investment. And Options is the most dangerous thing in the stock market.