Spotting Unusual Option Activity
- compare the volume in a particular contract versus the prior open interest. If the volume exceeds the open interest you know that new activity (as opposed to closing open positions) is flowing into the contract, and traders are taking their bets. You can also see if the volume was new by looking the next day to see the change in open interest.
- a backward induction process. Basically, if you see a stock trading heavy relative volume or moving an unusual percentage amount, check the options in the front two months to see if anything catches your eye, and go from there.
- Low floater with unusal option flow
- www.LiveVol.com
- Individual blog site like optionhawk
- IB and thinkorswim spreader platform
- Twitter people
Is it Option Buying or Option Selling?
- look at the Bid and the Ask on the contracts and watch to see where the last trade (paying close attention to trade size) price is, to see if traders are aggressive is selling the option (hitting the bid) or buying the option (willing to pay the offer).
- Livevolpro eg 1
Things to pay attention:
- More convincing if there are multiple activities (eg, one this week and more next week)
- Be Careful and look at the full Options Montage to see if the trading volume is part of a spread trade, a complex strategy, a rollover, etc.
- be wary of the intraday stock chart checking for large block trades that could be part of an options strategy, as a hedge (such as a collar trade)
- pay attention to ex-dates on dividends because sometimes heavy option flow comes in for dividend stripping, a strategy for later discussion.
- Per Optionhawk, institional paper is generally 250 contract +
Finding Unusual Activity:
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