Compounding refers to the process of adjusting the original *** in order to calculate the exercise of an option in options trading. Typically, the weighting will choose to adjust on the basis of the previous ** price to reflect the latest market conditions and technical indicators. Therefore, the right of adjustment can be divided into two ways: pre-right and post-right of review.
First of all, let's understand what is pre-reinstatement and post-resumption. Pre-re-weighting refers to the process of re-evaluating and adjusting the exercise of an option before its expiration dateThe post-adjustment is to carry out another adjustment after the expiration of the option to reflect the market conditions and changes on the expiration date.
So, should you choose the pre-reinstatement or the post-reinstatement?It depends on different factors and purposes. Here are some factors to consider:
1.Trading Strategy: If an investor is using a trading strategy based on technical analysis, such as trend following or crossover, then pre-weighting may be more suitable for their needs. Because both technical and fundamental analysis emphasize the importance of market movements and volatility, pre-weighting can help them better understand these factors. However, for those who focus on value investing or adopt a fundamental trading strategy, post-weighting may be a better option.
2.Exercise time: If the option has a longer time horizon, such as months or even years, then the pre-adjustment may more accurately reflect the real situation in the market. This is because changes in market and technical indicators over time can lead to irrationality in exercising**. Conversely, if the option is only a few days to a few weeks old, then post-compounding may be more appropriate because it is able to better capture short-term movements.
3.Selection of technical tools: Different technical tools and methods are suitable for different situations. For example, methods such as the Moving Flat** (MA), the Relative Strength Index (RSI), and the MACD are commonly used for trend following and analysisMethods such as Exponential Smoothing Convergence and Difference Moving Flat (EMA), Oscillating Index (OOS) and Smoothing Index (SMA) are often used to determine volatility. Therefore, which technical tools and methods to choose depends on the investor's preference and trading style.
4.Data**: Weighted data is typically derived from real-time** data and historical data sets provided by exchanges or financial information service providers. If the data source is of high quality and updated in a timely manner, then the pre-righting may be more reliable. If the data is unreliable or incomplete, then post-compounding may be more informative.
To sum up, the choice between pre-exercise and post-adjustment depends on factors such as the specific trading strategy, exercise time and data**. Investors can choose the appropriate adjustment method according to their own needs and actual situation, so as to better grasp market opportunities and risk control.