Option Trade Ideas Card

Option Trade Idea Cards


We discussed the option trade idea cards and answered questions.


How to find an option trade idea opportunity?


If you do not have research tools it will be difficult, if not impossible, for you to detect trade ideas with profit potential. A potential trade idea usually has some thesis or reasoning behind the catalyst for the idea. We discuss certain starting points to find option trade ideas quickly for further research.


Since the market has so many financial instruments and the markets are continuously trading, you need a way to narrow down potential candidates to consider. Most traders will use a screener as the backbone to narrow down a trade opportunity. We have numerous tools to screen for option strategy opportunities. If you want quicker starting points, we created our own pre-set conditions that are filtered out as trade card idea opportunities. These opportunities are based on theoretical edge and theoretical win rates using historical data in a theoretical value model.


Theoretical value is an estimated value of an option or an option strategy based on applying historical stock behavior with similar conditions. For example, we will take the days to expiration and the percentage distance of the option strike prices from the spot price and using historical stock return distributions we generate an average value for the options. You may do something similar in a real estate transaction. If you are buying a home, you may want to estimate the value of the home by comparing the current price to the average price of what similar homes sold for. By doing this, you establish a benchmark as a starting point for further investigation. If the home is selling at a discount to the historical benchmark, it can be an opportunity but you still need to do more due diligence. Is there a reason for the discount (such as needed repairs, shift in the market, more inventory for sale than usual, any other problems etc..)? You also want to consider your potential reward vs risks.


The theoretical edge is the difference between the theoretical value and current market price. It allows us to see how far away the price is diverging from a historical benchmark. Of course, historical data does not guarantee any future result but can help us with guidance. There is no way of knowing what will happen in the future before it happens. We can use history to view past behavior with similar conditions.