Schaeffer’s Investment Research Review: How Does Expectational Analysis® Work for Equity Options?

Schaeffer’s Investment Research Review gives an overview of Exceptional Analysis.

As Schaeffer’s Investment Research Review observes, there’s no one-size-fits-all approach that can guarantee a trader and investor in the stock market 100 % success. In addition, since markets are by nature unsteady, one method will be difficult to find. However, Schaeffer’s Investment Research Review has one unique method that blends three trading tactics, making the company stay ahead of the competition.

Schaeffer’s Investment Research Review: The three trading tactics

According to Schaeffer’s Investment Research Review, traders typically rely on technical and fundamental factors to analyze stocks or the overall market. But Schaeffer’s Investment Research Review goes a step further to incorporate sentiment as an additional strategy to understand markets and stocks. The company says that a combination of these three methods, a 3-tiered approach, produces a robust tool for stock analysis.

Schaeffer’s Investment Research Review: What’s sentiment analysis?

Schaeffer’s Investment Research Review says that ” Investor sentiment is simply the collective feelings, moods, beliefs, (and in some cases actions) of investors (from the smallest individual investor to the supposed “smart money” of institutions).”  The company explains that it looks out for correct sentiment indicators to show what some investors are doing, but it doesn’t ignore the investors’ feelings and comments. The latter can also be a valid way of analyzing stocks.

Investors should note that stock indicators are not without loopholes, and so does the sentiment analysis, says Schaeffer’s Investment Research Review. Using fundamental and technical approaches alone isn’t enough. Investors should also consider how they feel about a certain stock or expect the stock market to behave. The sentiment or expectation can tell an investor whether a market is good or going south.

What makes the price of a particular stock fall despite its positive earnings report, for instance? Or what makes another equity improve after satisfying expectations? Schaeffer’s Investment Research Review explains that the reason is simple: varied expectations of the two stocks.

If the sentiment was very bullish before the earnings report, it’s likely to disappoint the former. That’s because many traders had high expectations of buying the stock, putting lots of pressure on it. As a result, you get a “blow-out earnings report.”

On the other hand, when investors feel that a company’s fiscal health is less promising and expect the earnings to drop, shorting and put options can increase.

Schaeffer’s Investment Research Review: Why are expectations so important?

The reason is that a stock price reflects what investors think, expect, and feel about that specific stock, explains Schaeffer’s Investment Research Review. These views about a stock are indicators showing different directions a stock will take.

“A stock with relatively low expectations stands a good chance of rallying, as the price will rise from this artificially low level to one that reflects the “real world.” Conversely, high expectations can put downward pressure on a stock, as the price adjusts itself lower from its unrealistic heights to better match reality,” says Schaeffer’s Investment Research Review.

What does this mean for investors? The lower the expectations of a stock, the more the buying power is likely to skyrocket. That’s because skeptical investors lie in ‘ambush’ ready to pounce on the stock by purchasing it from those wanting to make a killing, leading to ballooning stock prices. An increase in demand further pushes stock prices.

However, the opposite happens with higher expectations. Investors have already spent their money buying stock over low expectations. As a result, you get few buyers, and the more negative news about selling, the more the stock price will decrease.

Led by an options guru, Bernie Schaeffer, Schaeffer’s investment research team has been using Expectational Analysis since 1981.

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