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Our critical day analysis is all about trend reversals. We tell you when there is a high potential for a reversal of the short trend and we've been doing it since 1994 with an 80%* accuracy. |
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OPTION GLOSSARY: Arbitrage: The simultaneous purchase and sale of two different, but related, securities with the intent of profiting by the price discrepancy. Assign: To transfer to another to whom the property is assigned. At-the-money: An option with an exercise price that is equal to the current market price of the underlying stock. Autocorrelation: The correlation between the values of a time series and previous values of the same series. American Style Options: An option contract that can be exercised at any time between the date of purchase and the expiration date. Basis: The difference between spot (cash) prices and the futures contract price. Beta: A measure of volatility that tells how much a stock moves in relation to an index or average. A beta of 1.5, for example, means that the stock may move 50%, either up or down, more than the Dow Jones industrials, or other indicator on which it is based. Bias: The difference between the expected value of an estimator and the actual value to be estimated. Black-Scholes Option Pricing Model: A model developed to estimate the market value of option contracts. Breakaway Gap: When a tradable exits a trading range by trading at price levels that leaves a price area where no trading occurs on a bar chart. Typically, these gaps appear at the completion of important chart formations. Call Option: An option giving the buyer the right to purchase an underlying security at a fixed price (strike price) and within a specific period of time (expiry date). Christmas Tree Spread: The simultaneous purchase and writing of options with either a different strike price or expiration date or combination of the two. Class of Options: A term referring to all options of the same security type - either calls or puts - covering the same underlying security. Coincidence: In Gann theory, a projected reversal point. Combination Spread: A technique involving a long call and a short put, or a short call and a long put. This technique is also called a fence strategy. Conversion: A strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk less profit. The process of executing these three-sided trades is sometimes called conversion arbitrage. Covered Write: Writing a call against a long position in the underlying stock. This is used to realize additional return on the underlying stock or gain some element of protection (limited to the amount of the premium less transactions costs) from a decline in the value of that underlying stock. Crack Spread: The spread between crude oil and it's products: heating oil and unleaded gasoline plays a major role in the trading process. Credit Spread: The difference in value of two options, where the value of the one sold exceeds the value of the one purchased. Debit Spread: The difference in value of two options, where the value of the long position exceeds the value of the short position. Delta: A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying security. Delta-Hedged: An option's strategy that protects an option against small price changes in the option's underlying instrument. These hedges are constructed by taking a position in the underlying instrument that is equal in magnitude but opposite in sign (+/-) to the option's delta. Delta-Neutral: This an "options/options" or "options/underlying instrument" position constructed so that it is relatively insensitive to the price movement of the underlying instruments. This is arranged by selecting a calculated ratio of offsetting short and long positions. Deep-in-the-Money: A deep-in-the-money call option has the strike price of the option well below the current price of the underlying instrument. A deep-in-the-money put option has the strike price of the option well above the current price of the underlying instrument. Derivatives: Financial contracts the value of which depends on the value of the underlying instrument - commodity, bond, equity, currency or a combination. Diagonal Spread: A strategy involving the simultaneous purchase and sale of two options of the same type that have different strike prices and different expiration dates. Divergences: When two or more averages or indices fail to show confirming trends. European Option: An option that can only be exercised on the expiration date. Fast Markets: A declaration that market conditions, in the futures pit, are so disorderly temporarily to the extent that floor brokers are not held responsible for the execution of orders. Gamma: The degree by which the delta changes with respect to changes in the underlying instrument's price. Front Month: The first expiration month in a series of months. Hedge: A position established with the specific intent of protecting an existing position. Horizontal Spread: Spreads between options with the same exercise price but different expiration dates. Also known as calendar or time spreads. Intrinsic Value: The portion of an option's premium that is represented when the cash market price is greater that the exercise price; a known constant equal to the difference between the strike price and underlying market price. Lag: The number of data points that a filer, such as a moving average, follows or trails the input price data. Leaps: Long-term Equity Anticipation Securities, which are options with maturities longer than one year. Leg Out: In rolling forward in futures, a method that would result in liquidating a position. Overbought: Market prices that have risen too steeply or too fast. Oversold: Market prices that have decline too steeply and too fast. Position Limit: The maximum number of open option contracts that an investor can hold in one account or a group of related accounts. Some exchanges express the limit in terms of option contracts on the same side of the market and others express it in terms of total long or short or short delta. Premium: 1) Total price of an option: intrinsic value plus time value. 2) Often this word is used to mean the same as time value. Resistance: A price level at which rising prices have stopped rising and either moved sideways or reversed direction. Roll: Substituting a far option for a near option on the same underlying instrument at the same strike price; also to roll forward or roll over. Scalp: In commodities, purchasing and selling equal amounts so there is no net position at the end of the trading day; a speculative attempt to make a quick profit by buying at the initial offering price in the hope the issue will increase and cal be sold. Spread: A trade in which two related contracts/stocks/bonds/options are traded to exploit the relative difference in price change between the two. Straddle: The purchase or sale of an equivalent number of puts and calls on the underlying stock with the same exercise price and expiration date. Strangle: The purchase or sale of an equivalent number of puts and calls on the underlying stock with the same expiration date but a different exercise price. Usually, the put has a low strike price and the call has a higher strike price. Support: A historical price level at which falling prices have stopped falling and either moved sideways or reversed direction. Theta: The measurement of the time decay of a position. Time Value: The difference between the premium paid for an option and the intrinsic value. As an option approaches expiration, the time value erodes, eventually to zero. Uncovered Option: The buy and sale of an option without a position in the underlying futures contract, also known as a naked option. Vega: The amount by which the price of an option changes when the volatility changes. Vertical Spread: A stock option spread based on simultaneous purchase and sale of options on the same underlying stock with the same expiration months but different strike prices. Wasting: A term depicting how an option's value decreases over time. Whipsaw: Losing money on both sides of a price swing. Zeta: The percentage change in an options price per 1% change in implied volatility.
A closer view of the most recent signals. You can see the short trend immediately prior to a successful critical day, reverses coming away from the critical day. Often a failed critical day will indicate a stronger bias in the market for continuation of the trend that was in place prior to the critical day. A failed signal can therefore provide as much information and opportunity as a successful one. Take a look at tech studies to develop a sense of trend reversals and use.
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