What are the Core Principles behind trading? Are there certain rules that successful investors follow? We’ll outline the major points here, which are applicable to any type of trading strategy, from stock and options to futures. These elements are all important to consider when analyzing and are always included in our Expert Stock & Options Picks service. This service is available with our Premium membership.
IV (Implied Volatility) Rank
Implied Volatility Rank shows you relative IV, that is, today’s Implied Volatility versus that of the past 52 weeks. It gives an idea of whether to buy an option when cheap (when volatility is cheap), or to sell an option when expensive (when volatility is elevated).
Return on Capital (ROC)
Return on Capital helps you determine when to enter or exit a position. Make sure to calculate ROC prior to executing an order or getting into position. It determines at what point to exit the position. Buy and hold doesn’t work well with options. So if you plan to enter a position by buying low and waiting to sell high, you have to know the exact point to exit the position.
Probability of Success (POS)
This shows you the Risk versus Return for you or the position. It is calculated using Tradespoon’s Probability Calculator, showing the probability of stock being at a certain price level at a certain time.
Estimated Move (EM)
EM shows, with a high degree of mathematical certainty, at what range the stock is likely to trade by the time the trade recommendation or option expires. This is based on a voluminous amount of underlying data points analyzed by our neural networks. Options data shows demand and supply in the market for the specific options during the operation months, and hence can be used to determine the trading range of the underlying stock.
10-day Support & Resistance
As we can see in Figure 8, if today is April 23rd, we will show you what we think will the High and Low be for the next 10 days-that is for April 24th, 27th, 28th through May 7th. If you look at the lowest price point for the lows and the highest price point for the highs, it will tell you what the Price Range and Support/Resistance for the trade recommendation for the next 10 days, as seen in the example for Dow Chemical (DOW).