The Unusual Options Activity will work perfectly as a predictive tool, which will help determine all the upcoming stock price movements of a specific underlying sign or symbol. Whether you are a manager form, an AI-powered investment agency, or a CEO of a portfolio management firm, unusual options data stands out as a helpful factor to magnify your confidence regarding all future investment decisions.
Are you interested to learn more about unusual options activities? Please check the information provided in this article. For additional information, you can check Vig.io.
Unusual Options Actions: The Definition
Unusual options activity is anything that occurs at the options market, which seems right out of the ordinary. Option markets keep their concentration completely on the future performance of a particular company. This particular data can be pretty profitable and valuable when they are in the right hands. It also delivers much easier access to the leverage of institutions and people.
Apart from that, unusual activity might also indicate that all the investors have conducted plenty of research, which enabled them to receive asymmetric reward/risk perspectives regarding a particular business. For instance, an investor will make proper decisions after researching into Apple Inc that the firm will experience some hand wings in the upcoming future.
This might make the underlying stock falter. The investor will then utilize this detailed information and make a bearish position in Apple by buying numerous contracts or jotting down some call contracts.
Why Follow Unusual Options Activity?
Opting for unusual options will help be highly beneficial for people and businesses. Traders follow it on the basis that the company or business has numerous analysts finishing off hours of due diligence on the stock, and the firm, trader, or funds might know something that you don’t, such as the chatter surrounding a buyout.
For instance, on December 26, 2016, Kate Spade opened up $14.85 for each share. Right after the open, 2000 contracts for the January 17 calls were bought at $0.20. Just after 20 minutes, news started to spread about Kate Spade’s buyout interest. The January 17 calls transformed to $2, realizing a profit of $360,000.
Apart from unusual options activity, data can determine the direction of a market for an organization or a business. They also bundle perfectly with the other dataset. For instance, you will get the chance to derive whether or not a contract is “out of funds” or “in the funds.” You can also easily derive whether the sentiments are bullish or bearish.
Ways That Prove Options Activity Is Unusual
There are three ways through which it proves that options activity is unusual. Look below!
- Contracts that are complete “out of funds” indicate unusual options activity. All these trades are conducted with the expectation that the underlying asset’s value will change dramatically in the upcoming future. It will also allow all the sellers and buyers to benefit greatly from a greater profit margin.
- Another sign of unusual options activity is trading a particular contract that comes with an expiration date in the future. The presence of extra time before a contract expires will enable the contract to reach its strike price and develop its time value.
- The one-way market activities are also viewed to be unusual. This is because the volume is much higher when compared with its historical average.
Unusual Options Activity: How To Identify It?
The 1st ever privilege for the unusual options activity is that the total volume should be multiplied by its average regular volume, at least 5 times the average volume. The higher the volume, the better it is.
But any option, which is currently trading a much higher relative volume, is worth checking out. It will be much better if you pay extra attention to the options, making massive individual orders.
This shows that one institution or a trader is making a bet and suggests that someone is carrying some insider knowledge. You should consider a massive individual volume to be the size of an average volume of one day.
You will surely come across many screeners that scan for the unusual options activity. The majority of the traditional or charting platform has this option in a built-in feature, and Ben zing Pro stands out as one such platform.
Stay Very Cautious
You have to remember clearly that unusual options activity occurs due to a massive hedge instead of someone trying to express a maneuvering view. In addition to the likelihood that an uncommon order being a windbreak, the order might also be a closing order.
On certain occasions, it’s pretty easy to sniff out a closing order because it carries a closing or opening marker, which is placed on the order by the broker or exchange. But this is not always the case.
You can easily decipher a closing order from an opening during such circumstances by observing the open interest. When the volume is way higher than the open interest, there is a high chance that the big order was actually the opening order.
Utilizing Unusual Open Activity As A Strategy
The unusual options activity is pictured as a practical approach. It will surely reward a particular investor who is exceptionally skilled. But for the less-experienced traders, it will simply be nothing more than a tool, which will allow them to make a sophisticated investment choice while taking all the other observations into their account.
Unusual Options Activity: The Characteristics
You will come across some characteristics, which are pretty specific towards the unusual options activity. The characteristics are:
- The daily or regular volume of an option contract is much higher than the average one.
- Most of the daily volume of a particular option contract comes from a massive trade.
Unusual options activity involves big orders that come with massive relative volume. You can take the help of filtering options to identify unusual options activities and take the help of other tools to analyze the trade.
Make sure to check the information offered about unusual options activity in this article. You will encounter some valuable information about it.