Master Technical, Fundamental, and Sentiment Analysis for complete market understanding
Professional options traders don't rely on just one type of analysis. They combine Technical, Fundamental, and Sentiment Analysis to make high-probability trading decisions.
Technical Analysis tells you WHEN to enter and exit (timing)
Fundamental Analysis tells you WHICH stocks to trade (selection)
Sentiment Analysis tells you WHERE the crowd is positioned (contrarian edge)
Result: Using all three = higher win rates, better risk management, and confident decision-making
Options expire. Unlike stocks where you can "hold forever," options have a ticking clock. This means:
Using all three types of analysis dramatically increases your odds of being right on all three.
Technical Analysis studies price action, patterns, and indicators to predict future price movements. It assumes that all information is already reflected in the price.
Core Principle: "History repeats itself" - patterns that worked in the past tend to work in the future because human psychology doesn't change.
Bull flags, head & shoulders, triangles, wedges. Visual formations that signal continuation or reversal.
Pattern RecognitionPrice levels where buying or selling pressure historically overcomes the opposite force.
Price LevelsLines connecting swing highs or lows that define the direction and strength of a trend.
Trend Identification20/50/200 EMA/SMA smooth out price action to show trends and act as dynamic support/resistance.
Trend FollowingRSI, MACD, Stochastic - measure momentum and identify overbought/oversold conditions.
MomentumConfirms price moves. High volume breakouts = reliable, low volume = fake out.
ConfirmationTicker: SPY at $450
Technical Setup:
Trade: Buy $452 calls expiring in 3 days at $2.50
Result: SPY breaks flag to $455 → calls worth $5.00 → +100% gain
Why it worked: Technical confluence (pattern + MA + RSI + volume) = high probability setup
Fundamental Analysis evaluates a company's financial health, business model, competitive position, and growth prospects to determine if it's undervalued or overvalued.
Core Principle: "Price follows value over time" - stocks of strong companies go up, weak companies go down.
Earnings Per Share. Is the company profitable? Are earnings growing quarter-over-quarter?
ProfitabilityIs the company selling more? 20%+ YoY revenue growth = strong business.
GrowthPrice-to-Earnings. High P/E = expensive, Low P/E = cheap (or troubled). Compare to sector average.
ValuationHow leveraged is the company? High debt = risky, especially in downturns.
Financial HealthCash generated after expenses. Positive = healthy, Negative = burning cash.
Cash GenerationDoes the company have a sustainable competitive advantage? Brand, network effects, patents?
Competitive EdgeIntraday/0DTE trades: A company's P/E ratio doesn't matter for a 2-hour scalp. Technical analysis dominates short timeframes.
Momentum plays: Sometimes weak companies have strong technical setups (short squeezes). Trade the chart, not the fundamentals.
Rule: Fundamentals matter more as your options expiration gets further out. 0DTE = 90% technical, 30+ DTE = 60% fundamental.
Ticker: NVDA (Nvidia) at $850
Fundamental Analysis:
Trade: Buy $900 calls expiring in 30 days at $25.00
Result: NVDA rallies to $920 as institutions buy on fundamentals → calls worth $55.00 → +120% gain
Why it worked: Strong fundamentals attract institutional money, creating sustained upward pressure
Sentiment Analysis measures how traders and investors feel about a stock, sector, or the overall market. It tracks fear, greed, optimism, and pessimism.
Core Principle: "Be fearful when others are greedy, be greedy when others are fearful" - Warren Buffett. Extreme sentiment often marks turning points.
Ratio of put volume to call volume. >1.0 = bearish sentiment, <0.7 = bullish sentiment (contrarian signal).
Options FlowMeasures market volatility expectations. VIX >30 = fear/panic, VIX <15 = complacency.
Market FearTwitter, Reddit, StockTwits sentiment. Extreme hype = top, extreme fear = bottom.
Retail SentimentWhen all analysts are bullish = top, when all are bearish = bottom.
Professional OpinionPositive news everywhere = everyone's in (sell), negative news everywhere = everyone's out (buy).
Media CoverageLarge call sweeps = smart money bullish, large put sweeps = smart money bearish.
Smart MoneyTicker: SPY at $440 (during market selloff)
Sentiment Analysis:
Contrarian Trade: Buy $445 calls expiring in 1 week at $1.80 (when everyone's bearish, be bullish)
Result: Market rebounds to $450 as fear subsides → calls worth $6.00 → +233% gain
Why it worked: Extreme bearish sentiment marked a bottom. When everyone's positioned one way, the market reverses.
The magic happens when you combine all three. Here's how professional traders use them together:
Use fundamentals to build your watchlist. Only trade stocks with:
Result: A list of 10-20 fundamentally sound stocks to watch
From your fundamental watchlist, wait for technical setups:
Result: Precise entry points with 2-3 levels of technical confluence
Check sentiment to confirm or find contrarian opportunities:
Result: Final confirmation or contrarian edge for your trade
Ticker: AAPL at $175
1. Fundamental Analysis:
2. Technical Analysis:
3. Sentiment Analysis:
The Trade:
Buy $180 calls expiring in 2 weeks at $3.50 per contract
Stop Loss: If AAPL closes below $172 (below 50 MA + technical support)
Target: $185 (resistance level + measured move from flag)
Result:
AAPL rallies to $184 in 8 days → calls worth $8.20 → +134% gain
Why it worked:
✅ Fundamentals = strong company, institutions buying
✅ Technicals = precise timing at support with pattern confirmation
✅ Sentiment = smart money positioning bullish, no extreme hype
Result: All three aligned = high-probability winning trade
| Analysis Type | Best For | Timeframe | Key Question |
|---|---|---|---|
| Technical | Entry/exit timing, stop placement | Minutes to days | WHEN should I enter? |
| Fundamental | Stock selection, direction bias | Weeks to months | WHICH stock should I trade? |
| Sentiment | Contrarian signals, confirmation | Days to weeks | WHERE is the crowd positioned? |
Technical: 90%
Fundamental: 5%
Sentiment: 5%
Chart-DrivenTechnical: 60%
Fundamental: 25%
Sentiment: 15%
BalancedTechnical: 30%
Fundamental: 50%
Sentiment: 20%
Value-DrivenRelying solely on technicals = trading weak companies that will eventually fail
Relying solely on fundamentals = missing precise entry points, getting stopped out
Relying solely on sentiment = chasing hype or fighting trends
Fix: Always use at least 2 out of 3 for any trade
Using fundamental analysis for a 2-hour 0DTE scalp = waste of time
Using only 5-minute charts for a 60-day LEAP = missing the big picture
Fix: Match analysis type to your options expiration timeframe
"This stock is overvalued, I'm buying puts!" → Stock continues ripping higher for months
Fix: Markets can stay irrational longer than you can stay solvent. Trade the chart, not your opinion.
Buying calls when VIX is at 10 and everyone's bullish = market likely to drop
Selling when VIX spikes to 40 and everyone's panicking = market likely to bounce
Fix: When sentiment reaches extremes, consider contrarian positions