Tech Analysis and Options

Before i go back into Options, I will do one more RANT on studying stocks. Considering you have picked a stock based on Fundamental Analysis (..or it might just be a long term pick in a Stock Magazine...usually this works...in good times, like now), then the hard part is find out if this stock is going up or down in the short term.
If you are just a equity (stock) investor, this is the most important thing....... hope you understand why. But now considering you are planning to buy or sell a option, one might think the short term movement of the underlying stock is of no importance (tomorrows value of the underlying, does not impact our......options value very much.....considering there is lot of time to maturity on the option). The best example of this is the second TXU option trade posted on this blog, the day after i executed a butterfly strategy, the stock moved like 8% into an area where if it stays till maturity, one month away, i could maximize profits, but since it happened the very next day, after i placed my orders, i was hardly up any money.

Coming back to the point: why short term movement in the underlying is important? because the market makes the buying call options pricey, if the trend of the underlying is upward.

So what can you do about it: analyse the underlyings technicals, find if it is near a support level, if yes, even if the short term trend of the underlying is downward, if the long term trend is up, you can buy the option, and it will be cheap, since the trend is down, the market will give it to you at a cheaper premium (than otherwise).