Relative Strength Index (RSI), a popular technical indicator, is used to determine whether an Option's price is too high or too low. The RSI fluctuates between 0 and 100. If the value is below 30, it means that the Option contract has been oversold. Anything above 70, however, indicates that there are overbought levels.
Here the calculation of Relative Strength Index, (RSI) is :
RSI = 100-100 / (1 + RSS)
Relative Strength = (Average Gain / N) / (Average Loss / N)
Time frame: n=
RSI is used by traders to determine a trend in the price movement of Options and receive buy/sell signals. The Options may experience a price reversal if the RSI is higher than 70. A RSI of 30 or less indicates that the Options are undersold. This could lead to an increase in future prices.