MAs are generally reliable with stocks, for investing or trading. Even for stocks which don’t have years of history, MAs generally work, because such stocks have at least a few months of history, excluding the recently listed ones.
But options, particularly weekly options, if bought 1 week before, don’t have any history, considering such weekly options have just a few traded days. I have checked them in real time, and they seem to work, need to check more.
So do MAs work with options, like they do with stocks?
Only VWAP works on options as majority of positions build on intraday. As they are just contracts ,i don’t think moving Average makes any sense in options for multidays.
Its not about history, leaps( dec options) has lot of history but options prices are not linear (based upon demand and supply) its function of 5 paramters( underline LTP,Strike, time to expiry, interest rate, historical volatility/IV) + demand and supply. All are dynamic in nature . MA is only on price which is kind of irrelevant for options as they are nothing but contracts on underline so price are dynamic.
I was saying that, a the price movement is dynamic, particularly intraday which I am checking, may be it appears as though MA is working in real time, but not like with a stock, where a conclusion can be drawn. I have come to know about only the price part.
MAs are trending indicators. So if the underlying trends roughly around 30-35% of the time, u have a good chance to make money. Otherwise when the market is flat of volatile u get whipsawed and typically absorb the losses.
MAs are lagging indicators. So you need certain number of price candles in the upside or the downside to confirm the movement after a price turnaround.
Rather than trying to use MA directly on options it may be better to use it on the underlying to do your analysis. As you noted the history is very limited for the weekly options. Getting a deep insight in to whatever strategy you are using therefore is not possible by directly applying the MA to weekly options.
