Lets Play US Stock Market Charades - Part 2

in #steemleo4 years ago

Two days ago, I introduced a new game called, US Stock Market Charades. In this game, there are no non-verbal (no talking) motion clues, just charts and I put a bunch of charts in order to give you clues so you could guess what direction the US Stock Market Equities were heading next.

Lets Play US Stock Market Charades

Alright, before I give you some additional clues, let me give you some background information first.

An option is a contract that allows, but doesn’t obligate an investor to buy or sell an asset at a predetermined price over a certain period of time.

Options are not the same thing as stocks because they do not represent ownership in a company. An option is simply a derivative on an asset’s price. When buying or selling options, because there is no ownership involved, the investor has the right to exercise that option at any point up until the expiration date.

A call option contract gives the owner the right to purchase 100 shares of a specified security at a specified price within a specified time frame.

A put option contract gives the owner the right to sell 100 shares of a specified security at a specified price within a specified time frame.

Lets keep thing really simple for this game of Charades. If you're buying a call option, it means you want the assets to go up in price so that you can make a profit off of your contract before it expires. If you’re buying a put option, it means you want the asset to go up in price so that you can make a profit off of your contract before it expires.

Unusual options activity (UOA) many times is a ‘tell’, a signal that there is a likelihood of a potential large move in the underlying stock. This informed activity is usually initiated by hedge funds and institutional traders. These insiders will use the options market to make very large bets to profit on the leverage that options provide.

Unusual options activity is first and foremost identified by the size of the trade. Open interest represents exiting positions outstanding that still need to be closed. If the volume exceeds open interest, you know it is a new opening position, which has more informative value than a closing position.

Source

Clue 1

A hedge is an investment to reduce the risk of adverse price movements in an asset. A popular example would be using options as an effective hedge against a declining stock market to limit downside losses.

Clue 2

These are options in the S&P 500 ETF, SPY from 10/1

OK, you have 60 seconds to earn one point, where is the US Equity Markets headed???

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

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People buying way more puts than calls means NUMBER GO DOWN. Is that what you are looking for?

Posted using Partiko iOS

You got it, now the question becomes is the down turn temporary and if so, how far is it going down, or is this just a pull back before resuming to new highs.

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Interesting game, sadly have little free time to play properly. But good to build in learning potentially new stuff within a game
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Understand, hopefully the next set of clues will make it easier.

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