Basic Option Strategy (part 1)

Technical analysis and fundamental analysis are the two basic areas of strategy in the option market which is the exact same as in the equity markets. However, technical analysis is by far the most common strategy that is used by individual option traders. Here is a brief overview of both forms of analysis and how they directly apply to option trading:

Fundamental Analysis In option Trading
If you think it's hard enough to value one company, you should try valuing a whole country instead. Fundamental analysis in the option market is often an extremely difficult one, and it's usually used only as a means to predict long-term trends. However it is important to mention that some option traders do trade short term strictly on news releases. There are a lot of different fundamental indicators of the currency values released at many different times. Here are a few of them to get you started:

Non-farm Payrolls
Purchasing Managers Index (PMI)
Consumer Price Index (CPI)
Retail Sales
Durable Goods

You need to know that these reports are not the only fundamental factors that you have to watch. There are also quite a variety of meetings where you can get some quotes and commentary that can affect option markets just as much as any report. These meetings are often brought out to discuss any interest rates, inflation, and other issues that have the ability to affect currency values.

Even changes in how things are worded when addressing certain issues such as the Federal Reserve chairman's comments on interest rates; can cause a volatile market. Two important meetings that you have to watch out for are the Federal Open Market Committee and Humphrey Hawkins Hearings.

Just by reading the reports and examining the commentary, it can help option fundamental analysts to get a better understanding of any and all long-term option market trends and also to allow short-term traders to be able to profit from extraordinary happenings. If you do decide to follow a fundamental strategy, you will want to be sure to keep an economic calendar handy at all times so you know when these reports are released. Your broker may also be able to provide you with real-time access to this kind of information.

Technical Analysis For option Traders
Just like their counterparts in the equity markets, technical analysts of the option trading market analyze price trends. The only real difference between technical analysis in option and technical analysis in equities is the time frame that is involved in that option markets are open 24 hours a day.