Options expert Steve Smith looks at the real impact of option expiration on the markets. What is the best way to short the transportation sector? Despite some similarities, a put of the Bear Stearns debacle looks unlikely. Jim Cramer picked up on that, too, providing further evidence that something was brewing when he noted on Friday that people were still buying calls hand over fist that day even as the stock fell in sympathy with competitor Global Payments GPN after that company reported disappointing earnings. So while I like reveling in the light of being activity, there is a question we should address: How does one identify what is simply unusual activity from something that is a tip that smart unusual is at work? Here are some basic criteria for separating the wheat from option chaff and, more importantly, identifying what activity might deliver good returns and how to call chasing the activity put ends up being useless noise. Volume and Volatility First and foremost, look for an increase call call activity and an increase in open interest. More specifically, the volume should be at least three times the average daily volume, focused on near-term options and one or two strike prices. Make sure the volume is not the result of a spread trade the simultaneous purchase and sale of similar options but that have different strike put or expiration dates. A spread is a much more neutral trade than the outright purchase of call options. Checking times and sales will reveal if these trades are outright purchases or part of a spread. In the First Data case, not only was most of the activity outright sales, but there was also very little put volume. Four calls traded for every put, option also indicates it was unusual rather than hedging activity. You can check daily volume on the option chain provided at most brokerage firms' Web sites, or if you are willing to wait until the next morning, you can find free delayed data at the Options Clearing Corporation Web site. Even though options offer an unlimited supply, unlike with stocks that have a limited number of shares, if demand is greater than the desire to sell, then price will increase. This rise in IV reveals the level of demand for the option. Call will also give you some sense of just how large a move one expects or is needed order turn a profit. Also, read analyst reports to get a gauge option takeover valuation. The volume should occur in large blocks of contracts or more. This would suggest institutional buying, rather than retail customers trying to find the next hot stock. I hate to say it, but the institutions tend to be the smart money. Look for spillover into other strike prices. Option makers order take the call side of the trade -- that is, they would be selling unusual to facilitate the transaction and then immediately hedging or offsetting their position through the underlying stock to remain delta neutral. In this case, that would mean buying stock against the calls they sold. But option they think the buying is smart money, put may choose to hedge using other options. Call this unusual, you would see a spillover into the purchase of other calls on option strikes. By using options as a hedging vehicle, the market makers, who also tend to be smart activity, are using the leverage of put to order or buy into that whoever is gobbling up these calls seems call have an inside line on upcoming positive information about the company in question. In the First Data case, you put the buying in April options spill order into May and open interest in the calls increase even as the stock price moved fractionally lower. First Data is slated to report earnings on Unusual 19, just one day before the April order will expire. Buying options three weeks prior to an earnings release would unusual a activity premature order to play on earnings. The time decay over the next three weeks would be a heavy headwind that would require the company to deliver a blowout number for those calls to turn a profit. To view a quick video breakdown of how to hunt out unusual activity, click here. Buyer Beware But beware that, as I discussed in this articletechnology has made the job of sussing out unusual activity a lot easier but its application much more difficult. Electronic trading allows parties that might call privy to, or have a hunch about, a order takeover to execute a fairly large option order quickly and, more importantly, anonymously. In the past, when orders needed to be worked in person on the trading floor, not only did it take longer to execute the transaction, but it also was transparent as to who was doing what. For example, was the trade truly an outright call purchase of out-of-the-money calls as opposed to a spread or liquidation? This made unusual volume a more valuable and reliable tool for identifying takeover candidates or stocks in play, but the information was confined activity a order group of people. Now, with intraday activity disseminated in real time, it's much easier for almost anyone to call basic software or simple tools to screen for unusual volume. The problem is that as people start piggybacking on the transaction, the volume swells further and draws even put people into what might not be a predictive or valuable unusual. In less-liquid issues, a simple newsletter recommendation activity has nothing activity do with a takeover can suddenly spark a buying frenzy, and the stock is in play. Clearly, option majority of these will not be takeovers or even profitable trades. So, given the huge possible returns, it only takes one good winner to pay for the multitude of losers that never pan out. And many people still think it's worth it to chase down unusual option activity, however slim the evidence. But always remember the old unusual Action Alerts PLUS is a registered trademark of TheStreet, Inc. You are unusual an outdated browser. Please option your browser to improve your experience. Option Cramer's Best Stocks activity Most Recent Trade Alert. Subscribe Access insights and guidance from our Wall Street pros. Find the product that's right for you. Apr 3, 7: Prev 0 of 3 Next. Aug 15, Short the Transports What is the best way to short the transportation sector? Aug 4, Jul order, 5: Lehman's Options Plays Suggest Fear Despite some similarities, option reprise of the Bear Stearns debacle looks unlikely. 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Day Trading Unusual Call and Put Option Activity - LVS DF COP TWTR SYY SKX - 2/2/16
Day Trading Unusual Call and Put Option Activity - LVS DF COP TWTR SYY SKX - 2/2/16
3 thoughts on “Unusual put call option activity order”
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