Using Option Open Interest to Develop Short Term Price Targets
By: AJ Monte
Overview: This paper explains how option trading influences the prices of underlying stocks, especially near the expiration dates.
Background on the Black-Scholes Model, and Delta Neutral Trading
This section introduces the concepts and formulas used to calculate the fair value and hedge ratio of an option contract, and how option traders adjust their hedges to maintain a delta neutral position.
How Traders Would Hedge a Short Straddle Position
This section illustrates the strategy and risk of selling both a call and a put option at the same strike price, and how option writers benefit from time decay and price manipulation.
Trading Ideas that Combine the Open Interest of Options and Bollinger Bands
This section proposes a technique to profit from the options markets by using Bollinger Bands and the open interest of the option contracts to set short term price targets. It also introduces the Pin Pressure Indicator, a tool that shows the strike prices with the highest open interest.