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Critical Day Analysis

Our critical day analysis is all about trend reversals. We tell you when there is a high potential for a reversal of the short trend and we've been doing it since 1994 with an 80%* accuracy.

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Options

An option is a derivative. A financial derivative is an instrument or security who's value depends on another financial instrument or security. Options in the securities industry includes stock options, index options, foreign currency options and options on futures. Options are used for a variety of reasons from financing strategies to hedging unwanted risk, to being part of the execution of complex strategies or used for simple speculation. An option is the right, not the obligation, to purchase or sell an underlying security at a stated price during a specific period of time. The most important determinant of an options price is the potential gain or loss and the probability of the occurrence given the time remaining to expiry. Option strategies can be designed to lock in a maximum loss and gain and allow for risk reduction while improving the leverage available to the invested capital. There are excellent resources on the web and in public library's on options and strategies and it is highly recommended that these instruments be fully understood before making investment decisions.

The purchaser of an option is called the "holder". The seller of an option is called the "writer". The holder pays a premium for the right to exercise the option contract. The writer grants the right and assumes the obligation of fulfilling the option contract and for that, a premium is received.

The writer of an option contract assumes the obligation to sell (for calls) or buy (for puts), a certain quantity of a specific underlying interest at a stipulated prices within a specific period of time.

Call Options - entitle the holder of the option to purchase a fixed amount of the underlying security.

Put Options - entitle the holder of the option to sell a fixed amount of the underlying security.

Call and Put options contracts contain a stipulated price and expiry date after which the contract ceases to exist. For these reasons there is added risk in trading options and it is recommended that investors become fully knowledgeable with options before trading options.

Some of the factors influencing premiums include the intrinsic value, time value, as well as the market price and volatility of the underlying interest. See our Glossary for definitions.

There are a number of strategies that can help reduce risk when trading options such as combinations and straddles as well as ratio spreads. The primary function of options is to allow investors a way to manage risk. A put option for instance allows you to fix a selling price for a limited time. A call option allows you to fix a buying price for a limited time. For sellers of calls and puts, premium income is often the motivation for the opening selling transaction. Option premiums are the prices of the options. The strike price or exercise price for an option contract is the price at which the underlying security can be bought or sold. Every option contract has an expiration date, on which the option is no longer valid and ceases to exist. For equity options, expiry is the third Friday of the expiry month (except when it lands on a holiday in which case it moves to the Thursday before the third Friday). Most options never expire but rather are closed by selling or buying a closing position in the market place prior to expiry. Options can be used to reduce risk, as insurance in setting a sell or buy price when the underlying security has possibility of movement. In the case of falling markets, a put buyer might be protecting profits as puts increase in value as the underlying falls in price. In the case of rising markets, a call buyer sets the purchase price for the stock and pays a certain premium insuring the ability to buy the underlying at the strike price regardless of any gains that occur after the purchase.

Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained from your broker or from the Chicago Board of Options Exchange at 440 S. LaSalle Street, 24th Floor, Chicago, IL 60605.

Most recent signals

A closer view of the most recent signals. You can see the short trend immediately prior to a successful critical day, reverses coming away from the critical day. Often a failed critical day will indicate a stronger bias in the market for continuation of the trend that was in place prior to the critical day. A failed signal can therefore provide as much information and opportunity as a successful one. Take a look at tech studies to develop a sense of trend reversals and use.