Stock Chart AnalysisUsing stock chart analysis can be very helpful in selecting strike prices that are unlikely to be reached during the life of the option. An example of a stock chart is shown here:
This chart shows the prices for QQQQ, the NASDAQ tracking index, over the last year. Time runs along the bottom of the chart and price runs along the vertical axis. Also plotted is a fifty-day moving average of the stock price in the blue line. Several points can be made about this chart with respect to potential option selling. First, QQQQ has been in an uptrend since March of 2009 to the right edge of the chart. It has not broken below the fifty-day moving average since March. Second, look to the white space below the fifty-day moving average. This might be a good location to consider strike prices for potential put sales that are less likely to be reached than those above the fifty-day moving average.
Simply by inspecting these kinds of charts, we can get a sense of where the stock price is unlikely to go. It is at these strike prices that we would want to consider candidates for option selling. Stock chart analysis is an art unto itself, and again there is much more for you to learn about charting than is covered in this brief overview. There are a number of books and websites available. The best site I can recommend is
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