Fundamental Analysis
Evaluating an asset based on financial statements, earnings, revenue, and economic factors rather than price charts.
Explanation
In options trading, fundamental analysis helps determine the direction and magnitude of potential price moves. Earnings reports, revenue growth, debt levels, and industry trends all influence the underlying stock price and, by extension, options prices. Fundamental catalysts like earnings can cause volatility crush.
Example
Before selling puts on AAPL, you analyze their P/E ratio, revenue growth, and cash reserves to confirm the stock is fairly valued.