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Analyzing the Markets: Part Two - Fundamental Analysis

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Another very popular method used in trade evaluation is fundamental analysis.

Fundamental analysis involves the attempt to measure the intrinsic value (or worth) of the stock to determine its relative worthiness as a potential trade or investment.

Factors such as the company’s financial health, the macroeconomic landscape, and even the competitiveness of the marketplace go in to calculating this number. Specifically, these different factors might feed into a Discounted Cash Flow Analysis or a Price/Earnings Ratio Analysis. These two methods, however, are not without serious problems of their own.