The Role of Fundamental and Technical Analysis

Abstract

A clear relationship is found between fundamental and historical volatility. The precise outcome for historical volatility is easily calculated as an exact outcome, versus the less reliable estimate of implied volatility in the option. Studies have concluded that historical volatility is more reliable than implied volatility, and that the results produced by each are similar. A second correlation is observed between fundamental volatility and underlying stock price behavior. This leads to a deeper understanding of options risk. The relationship can be given a proximity rating in order to narrow down the selection of both companies and their stock, and options trades likely to perform above average. Developing a point system improves probabilities of success.