![]() ![]() Trades executed on the offer tend to be a much more meaningful indicator. So a large move in the options price, represented by an increase in implied volatility, is a more powerful trade signal than a large order that has a lesser impact.įinally, we look to uncover if the trade took place on the offer price, meaning the buyer was aggressively willing to pay the higher price to get the trade executed. Implied volatility is just another way of stating the price of options. We also look to see that the large orders move the implied volatility of options in a meaningful manner. If the volume exceeds open interest, you know it is a new opening position, which has more informative value than a closing position. Open interest represents exiting positions outstanding that still need to be closed. Normally 3-4 times the normal volume would qualify as unusual.Īnother screen we employ is to compare volume to open interest. But 2,000 contracts traded on a less liquid issue would certainly be a more meaningful event. For example, 2,000 contracts traded in an Apple option would not be considered unusual, since Apple trades 100,000 option contracts or more daily. One has to compare it to the average size trade for that particular stock. But you can’t just look for the biggest trades to discover the unusual aspect of unusual options activity. Unusual options activity is first and foremost identified by the size of the trade. ![]() A call buyer would be taking a bullish stance, while a put buyer would be taking a bearish stance.ĭiscerning unusual options selling certainly has value, especially on the put side, but the focus of this article will be on uncovering unusual options buying …specifically call options buying. A call gives you the right to buy stock (usually 100 shares), while puts give you the right to sell stock. It requires knowledge, skill and diligence, but the payoff can be enormous.įor those unfamiliar with listed options, they’re classified as either calls or puts. ![]() So our goal is to uncover what the big players are doing and follow along with them in the most profitable manner possible. Icahn, used mostly options to take a very big stake in Target Stores stock. Bill Ackman of Pershing Square, the noted adversary of Mr. Famed hedge fund manager Carl Icahn used options, not stock, to take his large positions in Netflix and Herbalife. Hedge funds are using options to a greater degree on a daily basis. Frequently they will use the options market to pre-position in advance of an impending news announcement, such as a takeover, that may not be public knowledge. ![]() These insiders will use the options market to make very large bets to profit on the leverage that options provide. This informed activity is usually initiated by hedge funds and institutional traders. Unusual options activity (UOA) many times is a ‘tell’, a signal that there is a likelihood of a potential large move in the underlying stock. Once you’ve finished reading through this article, I suggest you check out my interview with Tim from EP 016 (if you haven’t already). You can gain access to RB Technologies here, which will allow you to find similar opportunities in options markets. It’s also worth highlighting, the software/scanning tool Tim refers to during this article is totally free and includes real time data. While this topic can be a little overwhelming if you’re somewhat new to options, Tim’s done a great job of breaking it down with screenshots and a real example for you to follow along with. Thirty years on, options remain his weapon of choice, and the way I see it, that makes him the ideal candidate to write about ‘unusual options activity’. Tim Biggam most certainly is – he’s been an options guy since 1985, originally trading on the floor of the CBOE. By no stretch of the imagination am I an expert on trading options, however… ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |