Stock Options Market Software
Stock options are publicly traded contracts that allow their holders to speculate on the future prices of stocks in novel ways, or hedge against declines in existing portfolios. They essentially allow the option holder to buy or sell stock at a set pre-determined price at any time before the option expires. Thus, option holders can profit from stock declines, or create complex strategies for specific market predictions. Stock option market software helps option traders analyze their strategies.
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Option Listings
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The first and most important feature of any stock option software program is the ability to easily search through the major option exchanges and see all publicly available stock options which you may trade on any stock. A single stock can have hundreds of different stock option contracts associated with it, each with a different expiration date and different "strike" price, which is the set pre-determined price at which the option holder may buy or sell the stock. Software programs make it easy to scan through these vast option listings to facilitate the selection of actual contracts you will trade.
Charting
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Most traders require robust charting features to identify potential trading opportunities and to execute strategies. The ability to chart a stock is a general requirement, since the profit potential of a stock option contract is dependent in many ways on the actual price performance of the stock itself. Thus most stock options program provide this basic functionality. However, since the emphasis is on stock option strategies and not actual buying and selling of stock, a stock options-only trading platform or analytical software may not have as rich a feature set of basic charting abilities as programs designed for stock analysis.
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Probability Calculators
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With stock options, the trader is always cognizant of the approaching expiration date. After an option expires, it is no longer traded and has zero value. Many options thus lose nearly all their value by the time they expire if the terms of the contract are no longer meaningful at the end of their life cycle. For example, a contract to buy 100 shares of a stock at $20 per share is useless if the stock is trading for less than $20 by the contract's expiration, since the option holder can get better prices without using the option contract. Many stock options software programs offer probability calculators to help traders gauge the likelihood that their option will still have some value by its expiration. To do this, they incorporate complex formulas that track the complicated factors that influence future stock option prices.
Complex Position Strategies
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While some option traders merely buy and sell single option contracts, more advanced strategies involve multiple "legs," meaning the purchase of many different option contracts on the same stock. Such strategies let the trader make novel predictions and profit from scenarios that no other financial instrument allows. For example, a trader can use options to profit from a move in any direction in a stock, without knowing the direction of the move. Or, a trader may profit from a "flat" stock that moves neither up or down significantly over time. To create such strategies, option software lets you graph the profit and loss potential of the complicated position involving multiple contracts. This is where these programs particularly excel, since such calculations are difficult for most people to do manually.
Warning
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While stock options market software is useful and even critical to the success of many option traders, it is not a foolproof method for guaranteed success. The financial markets, especially the complex options markets, fluctuate considerably and many factor affect their movement. These programs can help traders prepare for potential future conditions, but they do not actually predict future prices. It is possible to give yourself an edge by using options software, but the potential for losses is always present.
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