How to Use the Historical Option Graph

The purpose of the Historical Option Graph is to help traders see how expired options performed in the past. The chart supports millions of contracts across hundreds of equities and ETFs with option data going back up to 7 years.

You have the following settings in the chart:

• Puts/Calls
• Line Graph or Candles
• Underlying Stock
• Strike Price
• Expiration Cycle

 The chart displays High, Open, Low, Close, Volume for a particular option contract in 5 minute intervals. 

An Example Use Case: 

You want to sell an ATM cash secured put on AFRM before earnings and you want to see how that strategy has performed across their last 4 earnings reports. To do that, you would select AFRM, the ATM strike, the option expiration cycle closest to the same DTE you plan on trading and watch the price action of that same cash secured put strategy relative to the previous earnings reports. 

Using Historical Option Data

An option trader can use past data from historical options in several ways to improve their trading strategy.

1. Identifying Patterns and Trends: Traders can analyze historical data to identify patterns or trends in the prices of options. This could include looking for seasonal variations, recurring price movements around certain events (like earnings reports), or general market trends.
2. Backtesting Strategies: Historical data allows traders to backtest trading strategies to see how they would have performed in the past. This involves applying the strategy to historical data to simulate trades and assess profitability under different market conditions.
3. Understanding Volatility: Historical data can be crucial for understanding the volatility of an underlying asset. By analyzing how the price of an option has changed over time, traders can get a sense of the asset’s volatility, which is a key component in pricing options.
4. Comparing Implied Volatility vs. Historical Volatility: Traders often compare the implied volatility (a forward-looking measure embedded in the option’s price) with historical volatility to gauge whether an option is overpriced or underpriced.
5. Evaluating the Impact of Market Events: By reviewing how options reacted to past market events (like economic announcements, geopolitical events, or company-specific news), traders can better predict how future events might impact option prices.
6. Refining Risk Management: Historical data can help traders understand the range of potential outcomes, which is vital for effective risk management. This includes assessing the probability of different price movements and adjusting position sizes accordingly.
7. Learning from Past Mistakes and Successes: Analyzing past trades, both successful and unsuccessful, can provide valuable lessons and insights, helping traders to refine their strategies.
8. Optimizing Entry and Exit Points: By studying how option prices have reacted in the past under various conditions, traders can better time their entry and exit points to maximize profits and minimize losses.