What are option levels?

What are option levels?

For us trading Forex, these are the same price levels that we can use as support / resistance levels. They are based on real data, are always of interest to large market players and are characterized by a simple logic of work. When call options are dealt with by large players, it is likely that short futures on these assets are hedged. As a result, we get the real level of Resistance. In the case of PUT options, we get the Support level.

For us, they are a kind of indicator of option levels, near which large volumes of options accumulate. The Chicago Mercantile Exchange provides the necessary information about options on currency futures. Working with these levels, it should be understood that in the Forex market the price can also move in a certain range of options – from the Put level to the Call level. She is also capable of punching them or fighting them off.

Option levels are very similar to the levels at which we work with the TS “Sniper X”. By itself, it does not need any auxiliary techniques and tools. It is a powerful, simple and reliable trading system used to overclock a deposit. It can increase your deposit by over 57% in a very short period of time. The indicator of option levels can somehow help the trader himself, and the Sniper system relies on “its” levels. Sniper X trading levels combined with Price Action is a tool that improves the quality of your trade and the profit indicator for your trades.

The option levels we need are calculated taking into account the levels (or strike price – open interest) of Strike options. All information on open interest can be drawn from the daily bulletins of the Chicago Mercantile Exchange (CME).

Working with the CME Bulletin

The daily preliminary reports of the CME exchange can be found already at 7:45 – 8:40 am (Moscow time). The final report data can be seen one hour after the start of the American session. The information obtained in these newsletters can be used in our trade. Based on this data, we will build option levels and use them to search for quotes that allow the option seller to get Breakeven.

Reports for one trading day in the full version you can take on the two links below. As an example, let’s take a look at the FX section (forex currencies) and analyze the Call options on “Japanese Yen Call Options – PG 33” (Japanese yen).

Calculation of levels for Call-options:

  1. We are looking for in the first column the month that follows the current month (let’s say it will be August).
  2. Choosing a quote for open interest(preferred since it shows the number of open contracts)or by volume.
  3. We write out all the August quotes that have a very high open interest (we assume that it is> 500) and enter them 

Calculation of levels for Put-options:

Here we make similar calculations for Put options in yen and enter them into Table 2. In the second column we enter the values ​​obtained after multiplying the values ​​in the “Premium” column by the fixed number “0.0001”.

It remains to plot the option levels obtained in the course of our calculations on the chart. Build levels on TF H4. Mark in blue Put-levels, near them a large player is working to increase. Red color – Call-levels, here he is actively selling. Note that the thickness of the level is directly proportional to the value of the open interest – the larger it is, the thicker the level line. Sometimes there are too many levels on the chart, then you can remove the subtler ones. The rest work well as Resistance / Support levels. Considering that they are based on real volumes, their value for the trader increases.

So, in order to calculate option levels, in the bulletins of the Chicago Mercantile Exchange, you can find the most relevant data and not only by currency, but also by any other assets. It is difficult for a beginner to trade to understand the whole mechanism of building these levels, so they can use a simple and convenient tool, the indicator of option levels.

Indicator for trading options

Indicator for trading options

Not every trader can competently analyze the market, which is already talking about some specific analysis with mathematical calculations and the construction of special levels. All this manual work takes up a lot of time and reduces productivity. Today, special programs and indicators have already been developed that automatically build option levels on the chart. Let’s consider only those that are the most interesting and easy to use.

  •  The forex mt4 binary indicator is a free tool. It operates based on several algorithms that compare and analyze statistics and predict the direction of price movement of a particular option.
  • “60 seconds binary” is also a free option levels indicator that is popular with traders. It is based on the Chris Floyd algorithm. In addition to the levels, he marks candles on the chart that traders take into account when placing hourly options bets.
  •  Evolution options is a smart indicator capable of independently building and analyzing Put (used as Support) and Call (Resistance) levels. True, for this a trader must upload fresh data to his catalog every day. This data, like the tool itself, can be downloaded for free from the developer’s website. On the chart, he forms the “Key Zone”, highlighting it with color.
    The indicator indicates the direction of the market movement throughout the day in the direction where the price breaks the key zone. You can also trade on price rebound from this zone, and option levels act as a target for taking profit. It can be easily combined with other trading strategies, including Sniper X, the best and most profitable trading system available today.
  • “FGM” is the simplest indicator of option levels, working with any currency instrument on all TFs. Its authors recommend option trading on TF M15, but it gives true forecasts on all timeframes. On the graph, it is represented by only three curved lines in yellow, blue and light blue.
    The principle of its operation is simple: it gives buy / sell signals, depending on how its option levels behave on the chart. If the yellow curve crosses the blue and then the blue line upwards, followed by a sharp price reversal, you can buy / sell the asset, focusing on the price direction.

Conclusion

Today we talked about options, studied option levels – a complex tool, but very effective. By paying the minimum price, you acquire the right to sell / buy an option in the future, on a predetermined date and at a fixed cost per unit. You do not risk all your capital, but only those percent of the total amount of the future transaction that you paid when purchasing this right.

The option levels indicator is also a very useful and effective tool, especially for traders who still do not know the specifics of the market and do not fully understand the essence of option trading. They can use the indicator without thinking about obtaining statistical data and performing mathematical calculations.

Option levels are combined with fundamental / technical analysis. They work great with any other tool, Price Action, Sniper X or any other trading strategy. It is always more correct and more profitable to build trading on real market data than to be content with guesswork or relying on intuition. Once again, I would like to remind you that a market maker as an options seller is a strong market player, which is very difficult to beat.