The human mind can only handle so much within a given timeframe. Sometimes the financial markets move faster than the mind’s ability to keep up, which is why, given the available state of technology, some of those minds have been busy creating software to do the job.
The automated systems, which include stock trading systems and options trading systems, are interactive databases that monitor the status and movement of the markets, then flag specific securities that meet per-determined criteria.
It’s Complicated
In options trading markets especially, everything is driven by a complex set of supply and demand factors.
First, as with stocks, the price of an option is determined through a relationship between the number of buyers and the number of seller. If there are more buyers on hand, the price goes up. More sellers, the prices goes down. This is basic Econ 101… but with a twist.
Because where stock demand is driven by the fundamental performance of the company in combination with how the stock is trading within its normal range (technical analysis), options demand is solely driven by the current price momentum of the underlying stock.
Which means when a stock goes up, the call options contracts go up with it, while the put contracts go down. And vice versa.
Complicating all this is the variable of volume and backlogged order demand, creating a complex matrix of data. One more suited to a computer than to a tired investor trying to keep his or her eyes on a handful of stocks and the options associated with it.
Making the Call
An options trading system – you can buy your own or subscribe to a service that delivers the same information – is a program that watches these stocks and associated options contracts for you. Using price parameters that signal breakouts or meet pre-determined criteria, the program identifies buy and sell opportunities in real-time.
Using these sophisticated systems is not recommended for beginners. Why? Because the human element, seasoned through experience, is still the tie breaker. Because if the machines were always right, everybody would be getting rich day trading options.
Sometimes all is not what it seems in the markets, and individuals may have goals and hunches that defy the data. Such is the difference between winners and losers over the long term – day trading is very much a skill-intensive pursuit.
But a trading system, like any other tool, can help. And in this game investors at all levels need all the help they can get.
