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Retail trading platforms typically offer equity charts but only instantaneous quotes on options. It seems like even a few minutes of historical data would be useful when entering an order. Are charts not offered because traders don't use them, or do options traders typically subscribe to third party data sources for charts?

I'm aware of charts as devices to explain the value of an option contract with respect to the underlying. I'm interested in learning about why charts that show the historic price of a specific contract over time seem hard to find.

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how and why would you price an option contract with charting technique's? –  pyCthon Aug 29 '12 at 2:13

2 Answers 2

up vote 2 down vote accepted

I suppose there is no right answer (and I'm not entirely sure this questions fits here) but try these two:

  1. Given options are derivatives, their value is dependent on the underlying. So if you are taking a directional bet using options, you can use charts of the underlying because the option will follow.
  2. Professional options traders (and even serious ones) generally use options for risk management or taking bets that you cannot take with the underlying - such as on volatility. Therefore they will combine two or more contracts together making a chart of this type of position relatively worthless.

If you think about it, the "hockey stick" charts can really be considered a chart in time if you add a plot of BSM or some other pricing model. Also, you've probably seen surface charts associated with options positions. These often have an axis in time as well.

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It seems like there would still be some utility in examining the value of an option contract over the past few days or hours as part of your process to execute a trade. As I watch the value of an option and its underlying equity move over time, the moves sometimes appear counterintuitive. It is hard to tell if this is because I'm misremembering the last few prices without a chart. –  ObscureRobot Aug 30 '12 at 21:24
    
I suppose in illiquid options, you may see strange or "counterintuitive" jumps. Perhaps another reason to avoid using the traditional charts when looking at options... –  strimp099 Aug 31 '12 at 17:35
    
I don't follow. If the counterintuitive jumps are due to illiquidity, then that will show up very clearly in a chart - tiny volume and almost no motion in the contract price over time. But if there is a bunch of volatility and contract volume, then it is probably something else. –  ObscureRobot Sep 2 '12 at 6:59
    
Illiquidity in the options market most often shows up as large bid-ask spreads. If you follow the options market in illiquid names you would notice that the last traded price will often be far away from where the bid and ask are. Then, when a trade is executed at the bid or ask, the last price will jump to that price leaving moves one might consider "counterintuitive". Often, illiquid options will have a lot of volume or open interest but still a large bid ask spread. –  strimp099 Sep 2 '12 at 15:09

I think the answer depends on the trader's methodology and who you mean by "option trader". For example, some traders place directional bets using options/leaps when the structure of market points to early trend stage on longer time frame. Or when a market is over extended but no clear point to place a stop. In both these cases, chart of the underlying market is more useful to plan and decide the trade. Option price chart here is more to refine the order price (if needed).

On other hand, I suspect traders whose methodology relies on capturing premiums for positive edge would probably use various option charts besides option price chart and also rely on math more.

So in short, there is no one right answer as suggested by above two excellent comments.

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