![]() Benzinga does not provide investment advice. We scan every trade on the market (hundreds per second) whether its made by a retail. ![]() Unusual options activity is an advantageous strategy that may greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain as another tool to make an educated investment decision while taking other observations into account.įor more information to understand options alerts, visit Options flow is also often referred to as unusual options activity (UOA). For the latter case, the exposure a large investor has on their short position in common stock may be more meaningful than bullish options activity. ![]() Once the trade hits the tape we can follow the flow. That gives them a short window to pounce. Unusual options activity (UOA) is many times a tell that big hedge funds or institutions are positioning for a big move in the underlying stock. The smart money is more likely to have the certainty of upcoming news between the time that the deal is done and when it is announced. An observer cannot be sure if the bettor is playing the contract outright or if they’re hedging a large underlying position in a common stock. The first key to identifying unusual option activity is understanding that it is relatively big size for a short time frame. Options are “bearish” when a call is sold at/near bid price or a put is bought at/near ask price.Īlthough the activity is suggestive of these strategies, these observations are made without knowing the investor’s true intentions when purchasing these options contracts. Options are “bullish” when a call is purchased at/near ask price or a put is sold at/near bid price. These trades are made because the underlying asset value is expected to change dramatically in the future, and the buyer or seller can take advantage of a greater profit margin. This occurs when the underlying price is under the strike price on a call option, or above the strike price on a put option. Time value is important to consider because it represents the difference between the strike price and the value of the underlying asset.Ĭontracts with a strike price far from the underlying price are also considered unusual because they are defined as being “out of the money”. Usually, additional time until a contract expires allows more opportunity for it to reach its strike price and grow its time value. When a contract has an expiration date in the distant future, it is generally another sign of unusual activity.
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