Mark,

How do you feel about buying calls when then are low, say 2 to 3 months out, and one or two units out of the money using RSI, MACD, and Slow Stochastics?

I buy calls when the RSI is below 40, MACD is converging and positive, and the Slow Stochastics indicate the stock is over sold. I try to align all three indicators. I have done this a few times and been successful but I'm not sure its from luck and general market being bullish which helps. The stocks I have traded had excellent charts with healthy pullbacks near their 40 day moving averages but still bullish overall. What do you think of these indicators for entering calls at a discount????

Chris

Hi Chris,

I hate to say this, but I have absolutely no idea. I never use the technical indicators you mentioned and have no idea how they work.

But if you are having success with your charts, then by all means continue to use those charts to help you time when to go long.

I do have one suggestion: Sometimes it's better to buy stock than calls because the implied volatility of the calls may be too high. That can happen when news is pending - such as an earnings announcement or a statement from the FDA. Consider looking at the historical implied volatility for the options of the given stock before you buy those options. When the implied volatility is significantly above the recent historical average, that's the time to buy stock (or perhaps sell puts). When option prices are reasonable, based on those historical implied volatilities, that's the time to buy options instead of stock. If you are not sure where to find the needed historical data, write again and I'll provide that information.

Mark