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Using unusual options activity9/24/2023 Unusual options activity is especially worth paying attention to when the bulk of the volume in a contract is driven by one or a few large trades. So, watching unusual options activity can offer insight into whether traders think a move is coming in the near-term or in a few months’ time. Options contracts require traders to speculate not only on whether a stock’s price will move, but also when that movement will happen. In addition, unusual options activity can allude to future price movements. So, the options market offers an alternative way to gauge market activity around a stock. Higher than average trading volume in options contracts for a stock can occur even if trading volume for the stock’s shares is at or below average. Unusual options activity is worth paying attention to because it signals unusually high interest in a stock. Why is Unusual Options Activity Worth Paying Attention To? High trading volume in an options contract can be due to a single large institutional trade or it can be due to widespread interest in a stock as a result of news or other catalyst. Unusual options activity usually occurs in response to a catalyst, such as an earnings report, financial guidance, or an event that materially impacts a company’s stock. Open interest represents the total number of active contracts that have not been sold or exercised. Unusual options activity is also said to occur when the volume traded in an option on a single day exceeds the open interest in that option. This is 10 times the average trading volume and is considered unusual options activity. Then in one day, 50,000 contracts of that option are purchased. Typically, unusual options activity is said to have occurred when trading volume in a contract is five times higher or greater than the average daily trading volume for that option.įor example, say that 5,000 contracts of a call option on Apple are traded on an average day. Unusual options activity is significantly higher than average trading volume in an options contract. Each options contract has trading volume, which is measured as the number of contracts bought and sold in a single trading day. For a put option to make a profit, a stock’s price must be lower than the strike price before expiration.Ī unique options contract is defined by its underlying stock, whether it is a call or put option, its expiration date, and its strike price. For a call option to make a profit, a stock’s price must be higher than the strike price before expiration. It’s not the same as the breakeven price for an options trade, but it does play a role in determining whether an options trade is profitable. The strike price is important because it represents the price at which an option contract can be exercised. So, if a trader or institution wants to speculate on a price movement in a stock using options, they also have to decide when they think that price movement will occur. The expiration date is important because an options contract is worthless after that date. Stock options can be bullish (call options) or bearish (put options), and every option has an expiration date and strike price. In order to understand unusual options activity, it’s important to know a little about the options market. In our guide to unusual options activity, we’ll explain what it is, why it’s important, and how you can track and generate trading ideas off of it. Keeping an eye on unusual options activity can help you generate trade ideas and stay one step ahead of the market. This type of activity is often due to institutional investors and it can be a signal that smart money thinks the price of a stock will move soon. Unusual options activity occurs when trading volume in an options contract is high above its average.
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