Optional levels as indicators in trade

Choosing a trading strategy is the cornerstone of trading in any financial market. This immutable truth has become a powerful stimulator for the emergence of numerous methods of trade, most of which have no practical utility and pursue purely commercial goals — to sell an ultramodern «strategy».

The trader has to deal not only in the chaos of the price movement, but also in the chaos of the suggestions of developers of all sorts of indicators and oscillators. It is absolutely clear that no one will sell a chicken carrying golden eggs, so a well-packaged novelty, no more than an advertising move from the manufacturer. Professional traders prefer strategies that are time-tested. One of them is the optional levels (DU), which «do not recognize» mathematical formulas and fall into the category of volume indicators. It is known that it is the market information on the volume of trading used by market makers that automatically puts the method in the rank of priority.

Nature of optional levels

In order to consciously apply the volume method in trading strategy, it is necessary to understand what the essence of option trading is.

The option, like futures, is a derivative financial instrument. The underlying assets of options are the same as those of futures (any that are traded on the exchange), while the futures itself can also be the underlying asset of the option. The main condition is that the asset must be quoted on the exchange.

Under the definition of «option» is understood the right (and not the obligation, as in a futures contract) of the purchase/sale of the underlying asset on, or before, a certain date, at a fixed price. Acquiring the right (option), the Buyer takes a long position on the exchange transaction. The right can be used to buy (call option) or to sell (put option). The second side of the contract is the Seller, takes a short position, while he has an obligation to buy/sell the asset at a fixed price at the time when the option holder presents his rights.

On the technical side, buying an option is no different from dealing with other instruments. A «glass» of supply/demand prices is considered. The Buyer and the Seller agree on the price, after which the Buyer pays the option price and acquires the right (option price, value and premium are equivalent concepts). Stock exchange specification of the option contract includes:

• type of option (Call or Put);
• the name of the underlying asset;
• date of the contract execution;
• performance price.

Depending on the time of presentation of rights, options are divided into two styles — American and European. The rights to the European option can be presented only on the last day of its «life» on the exchange. In the case of the American option, the presentation of rights is not regulated in time.

Options trading is used both for direct profit-taking, and for hedging risks. The main advantage of the option is risk limitation — it is known in advance, and only the option value can be lost. Option trading significantly increases the ratio of profit/risk.

Optional levels as a tool for analyzing financial markets

Optional levels can be used as additional methods of analytical research on Forex and commodity markets. The optional levels indicator for mt4 helps to get the necessary data and display it in the trading terminal — with their help, you can receive signals at an opportune moment to open positions. A tool such as eVOLution-options allows you to install a set of 3 optional level indicators in MetaTrader 4 for free (each indicator performs its function by analyzing different characteristics). In their essence, the indicators of the OS are software analytical complexes whose task is to analyze the influence of the options market on spot assets.

The effect of option levels on the spot market is twofold:

• during the espiration of large transactions, significant price jumps occur in the direction opposite to the option;
• when the closing time of the contract is appropriate and the option holder sees that the market is moving in the «inappropriate direction,» he opens new deals to return the price to a favorable direction and reduce the final losses.

Hence, getting reliable and timely information about serious «interest», at a specific price level, is extremely important. Unfortunately, standard trading terminals do not display data about large options. Such information is classified as an insider and falls into free access with a delay of 2-3 days. More recent information can be obtained either by paid subscription from a broker, or by doing an independent analysis of exchange publications. This is a rather difficult exercise, so the help of the OS indicators will not be superfluous.

Option levels are calculated on the basis of information from the Chicago and London commodity exchanges, where the main trade in options contracts takes place. Every day, the exchanges publish preliminary reports, and the final one goes out within an hour after the start of trading. For the European trading session, it is correct to use the information of London, for the American one — CME. Based on these data, you can build optional levels and take them into account for analyzing the market situation. Option levels will show quotes at which the option seller leaves the transaction without loss. Experienced players noticed that if the stock market reports are delayed, then we should expect an increase in market volatility.

Optional levels very well show the level support/resistance zones. Large players, market makers, always take into account the real stock market reports. The trader’s task is to follow the actions of these «sharks». If the focus is on Call options, then most likely, a short position on the futures on these assets is hedged. Then the level of «Call» can be taken as resistance, and the support will perform the level of «Put». One of the «commandments» of experienced traders is: «follow the market maker.» Large players play with large stakes, so they rarely make mistakes. It is believed that 80% of the funds turned over on the exchanges, manages up to 10 market makers.

What does the eVOLution-options indicator show?

To calculate the data, constantly updated information about the purchase/sale of options contracts is taken. The analysis of the market situation takes into account the real ratio of demand and supply, the volume of trade operations (help determine the strength of the level).

• in the settings you can set the required list of currency pairs;
• the support / resistance levels are calculated after the end of trading sessions on major commodity exchanges (the number of levels is set in the settings);
• shows the key zone of balance between the large Call, Put options. The penetration of such a zone, with a high degree of probability, indicates the direction of the trend until the end of the current trading day;
• shows the zones for optimal setting of stop-loss and take profit levels.

In the market there are many author’s indicators of the Shelter, which are used on the platforms MT4, MT5, Ninja Trader, etc.

Analyzing optional levels of Forex, a trader has the opportunity to earn not only in a volatile market, but also in periods of flat that make up the lion’s share of time cycles. The op amps are not tied to phases.

The most important concepts for option analysis are:

• strength of price levels;
• price ranges;
• the market’s edge.

All these factors pass a long way of formation and create a vector of the direction of price movement, which becomes a powerful force of attraction for large money.

The analysis of option levels is usually done on the charts — the total number of options for contracts and strike (the cost of execution) is displayed. Usually, such a construction is valid for 1-2 months. Detailed analysis requires also taking into account the binding to futures options. The purpose of such studies is to identify high risk areas, depending on the behavior of the currency pair.

Optional levels, in combination with fundamental and classical technical analysis, will be an excellent assistant in determining real market fluctuations and an effective tool for any trading strategy.