The existence of irregularities in Options Order Flow is an irregular options operation. Many individuals appear to associate the movement of order with odd events, but they are not all the same, as you can see. The order flow in options is all the trades in real time in the Options markets. Big $ trades, large trade scale compared to Open Interest, Sweeps & repeat purchases are the variations that count as odd.
Back in the days where most dealing was carried out on the board, traders detected an unusual activity of options (or any security) by open outcry: yelling and hand gestures.
The way we recognize big money flowing into an option nowadays, with trading floors almost gone, is clearly by volume and market screeners. When an alternative that normally trades a few contracts a day unexpectedly trades 5,000 contracts a day, someone bets that there will be a major move.
The operation of unusual options clearly describes unique options contracts trade a significant amount of money compared to the normal daily volume of the contract.
One sign of unprecedented trading behavior for options is an unusually high amount (compared to historical averages). When addressing options market behavior, volume refers to the average amount of contracts exchanged over a given time span. Open interest is considered the amount of transactions that have been traded, but not yet closed by any counterparty. Until there is both a buyer and a seller for it, a deal will not be declared closed.
The selling of a contract with an expiration date in the far future is another sign of irregular options behavior. In general, more time before a deal expires increases the opportunity for it to raise its time value and meet the strike price.
There is a litany of scanners/screeners that search for suspicious activity options, but you want to use one that fits you, and we hope SweepCast does this for you at an affordable rate.
There are a few things that you can do to set up your exchange and raise the likelihood of making successful transactions once you have established the UOA:
Check the press for future catalysts: you ought to have a brief peek at all the news on the stock in question just to see if something is coming up that might act as a trigger to help explain why at this moment there is UOA in the stock. It's nota huge deal if you don't notice any coverage, so the idea is that whoever isbehind the trade actually knows something that is not public knowledge yet.
Bear in mind that some scanners do all the work for you, while others need you to look at the volume with the time & sales within the options chain and cross-reference that.
· The Volume/Open Interest
· In OTM or short-dated options, high relative volume
· In one deal, large inter-market sweep orders
Note that today, much of the capital exchange is owned by major institutions. Usually, these institutions build their stock holdings over several months and intend to retain the stock for the long-term.
Many occasions, when institutions feel volatility on the precipice, whether in the form of an earnings announcement or forth coming headlines, by purchasing options, they prefer to cover any of their downsides.
It is important to note that, sometimes, odd operation choices are due to a large hedge taking place, rather than anyone voicing a directional perspective. You want to continue to search for multi-sweeps in any case with the option price increasing and more unusual option buyers coming in, this usually helps indicate further conviction of the trade.
You've learned enough about Unusual Options, now try it out in your everyday trading!