Finding Option Buyers

Success with UOA Starts Here 

The primary goal when trading an Unusual Options Activity strategy is to find buyers. And more specifically, to find buyers that are doing an “Opening” trade. This means that they are starting a new options position in that strike.

Opening Option Buyers tells us something very important – they think the stock is going to have an outsized move within the time frame they chose. This is very important information to us and is at the foundation of the strategy.

Buy,Trade and Sell Keys

Suffice to say, we need to be highly confident at this juncture when we are analyzing the flow. If we make a mistake when evaluating the option and choose to follow an option that was sold (or bought to close), then overtime the strategy will not work.

So, how do we analyze the flow?

Once you see something interesting to analyze, follow these steps.

  • Step #1:  Is it a Spread?

  • Step #2:  Is it a buyer?

  • Step #3:  Opening trade?

Step #1: Is it a Spread?

You can see options flow for individual stocks on the available Options Tools. Some of the tools will indicate if the options flow is part of a spread (multi-leg options trade).

If the options flow indicates “Spread” or “Sprd” or "COB" (Complex Order Book) in the Conditions, then that trade is attached to another options trade, or sometimes tied to stock.

If the trade you’re looking at is not a spread, skip to Step #2.

Once you’ve determined the trade is a spread, you want to find the other leg of the spread. I’ve made it easy to find the other options leg(s) on the Stock Page.

A. Find the different Legs

Head over to the Stock Page and type in the ticker you are looking at.

Once the data populates, go to the second box labeled “Top individual Trades in XYZ”

In that box, try to find the trade you are looking for.

Notice the last column labeled “Time.”

If you sort the last column, you will see other options that traded at the exact time. Those will be the other legs of the trade.

B. Initial Clues

Next, you want to look at the “Side” column.

Did one options leg trade on the bid and the other on the ask?

If so, it might be that you can make a good guess that he sold the option on the “BidSide” and bought the option on the “Askside”

C. Opening vs. Closing

You will also want to look at the Open Interest to determine if one or both options legs were closing trades. A high Open Interest on one leg and vey little Open Interest on the other often indicates a “Roll.” This means that the high Open Interest option is likely a Closing Trade, and the low Open Interest option is an Opening Trade.

D. Confirm

If you think that one leg was a Closing Trade, then try to confirm that thought. Click on the Open Interest cell and see if there is any date that stands out as having a similar number of contracts.

For example, if today’s contracts are 15,000 (and OI = 18,000), look at the historical volume to see if there were other dates with 5,000 to 15,000 contracts for clues to when the trade was Opened.

Once you find those dates, use the Calendar and Historical Data to go back and analyze the trade on that date. You can follow the next section “Is it a buyer?” or you may find that it was a spread on that date that was also rolled from an earlier date. You would start this “Spread” process over again and then go back another date until you get to the Opening Trade.

Buy,Trade and Sell Keys

Finding Option Buyers

Success with UOA Starts Here 

The primary goal when trading an Unusual Options Activity strategy is to find buyers. And more specifically, to find buyers that are doing an “Opening” trade. This means that they are starting a new options position in that strike.

Opening Option Buyers tells us something very important – they think the stock is going to have an outsized move within the time frame they chose. This is very important information to us and is at the foundation of the strategy.

Suffice to say, we need to be highly confident at this juncture when we are analyzing the flow. If we make a mistake when evaluating the option and choose to follow an option that was sold (or bought to close), then overtime the strategy will not work.

So, how do we analyze the flow?

Once you see something interesting to analyze, follow these steps.

  • Step #1:  Is it a Spread?

  • Step #2:  Is it a buyer?

  • Step #3:  Opening trade?

Step #1: Is it a Spread?

You can see options flow for individual stocks on the available Options Tools. Some of the tools will indicate if the options flow is part of a spread (multi-leg options trade).

If the options flow indicates “Spread” or “Sprd” or "COB" (Complex Order Book) in the Conditions, then that trade is attached to another options trade, or sometimes tied to stock.

If the trade you’re looking at is not a spread, skip to Step #2.

Once you’ve determined the trade is a spread, you want to find the other leg of the spread. I’ve made it easy to find the other options leg(s) on the Stock Page.

A. Find the different Legs

Head over to the Stock Page and type in the ticker you are looking at.

Once the data populates, go to the second box labeled “Top individual Trades in XYZ”

In that box, try to find the trade you are looking for.

Notice the last column labeled “Time.”

If you sort the last column, you will see other options that traded at the exact time. Those will be the other legs of the trade.

B. Initial Clues

Next, you want to look at the “Side” column.

Did one options leg trade on the bid and the other on the ask?

If so, it might be that you can make a good guess that he sold the option on the “BidSide” and bought the option on the “Askside”

C. Opening vs. Closing

You will also want to look at the Open Interest to determine if one or both options legs were closing trades. A high Open Interest on one leg and vey little Open Interest on the other often indicates a “Roll.” This means that the high Open Interest option is likely a Closing Trade, and the low Open Interest option is an Opening Trade.

D. Confirm

If you think that one leg was a Closing Trade, then try to confirm that thought. Click on the Open Interest cell and see if there is any date that stands out as having a similar number of contracts. For example, if today’s contracts are 15,000, look at the historical volume to see if there were other dates with 5,000 to 15,000 contracts for clues to when the trade was Opened.

Once you find those dates, use the Calendar and Historical Data to go back and analyze the trade on that date. You can follow the next section “Is it a buyer?” or you may find that it was a spread on that date that was also rolled from an earlier date. You would start this “Spread” process over again and then go back another date until you get to the Opening Trade.