So you want to know how to find unusual options activity? UOA is typically sparked by hedge funds and institutions, as they trade the options market regularly with very large trades to gain profits on the massive leverage that options can provide. It is very common for these institutions to position themselves in advance of a pending news announcements, such as a buyout or bankruptcy, that may not have gone public yet.
Although UOA is tricky, using this strategy can see potential gains that are ridiculous. A call buyer takes on a bullish bias, while a put buyer takes on a bearish bias. I strongly urge you to do some homework before ever considering selling either calls or puts. However, when you buy either, your downside is always limited to your capital invested.
When you sell either, downside can be infinite similar to short and long trades. This write-up will touch on calls, and how to find unusual options activity.
Such a trade would indicate that the buyer was very aggressive, and willing to pay the premium price to execute the trade. Trades at or above the ask tend to be much more significant. Size vs Daily Avg. The average sized trade for that particular name must be compared.
Roughly 4 times the normal volume would typically qualify as unusual. Volume vs Open Interest Compare volume to open interest. Open interest or OI represents exiting positions that are outstanding, that are still needing to be closed.
If volume exceeds OI, you know that someone is opening a new position, which has far more informative value than that of a closing one. Implied Volatility Change Implied volatility or IV displays the overall expectation of future volatility. Therefore, an increase in implied volatility is a more valid trade signal than a larger order that has a lesser impact on IV.
The process of breaking down what is considered to be valid unusual options activity can be daunting. It seems like a lot of analysis to perform on one trade, but options scanners can handle all of this for you in a very streamlined way, taking out a lot of the guess work. Several viable platforms are available like OptionAlert and Wiseguys.
The UOA toolbar on their platform alerts to these sort of setups all day long. Time to pull up the chart…. Looking at the daily, I can see that price looks to be bouncing off of the dma, as price broke and closed below it yesterday… only to break back above it today. Digging a little further, I can see on the 60 minute chart that price created a coil or symmetrical triangle around the POC that broke down and has now put in a golden retracement to the 1.
Based on the move that followed the 1. However, the UOA calls may have paid off for those that spotted it sooner. Following up on this trade several days later, we can see that the action shown on the previous chart was where the high was put in. Another option for how to find unusual options activity is with a scanner like Trade Ideas. Trade Ideas is evolving their options related tools on a daily basis, so watch for changes moving forward.
This is another valid method used for how to find unusual options activity. I hope you now understand how to find unusual options activity, and develop a strategy for executing upon it. Note that timing on some of these can be crucial. Never take a trade simply as a result of smart money activity. Pull up the chart for yourself. Analyze what you see. However, trading UOA can be tricky. Literally hundreds of thousands of options orders are reported every day.
Read more about time related options trading in The Value of Time. Your email address will not be published. How to Find Unusual Options Activity The process of breaking down what is considered to be valid unusual options activity can be daunting. Time to pull up the chart… Looking at the daily, I can see that price looks to be bouncing off of the dma, as price broke and closed below it yesterday… only to break back above it today.
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