Getting Started

Two Processes, Both Valid

A Great Options Trade Idea usually has several elements to it that include, but are not limited to:

  • Options Analysis
  • Technical Analysis (Charts)
  • A Fundamental Story
  • Data Analysis

While there is no specific order that must be followed using these elements, there are two general processes that investors use to find Great Options Trade ideas.

Trade Idea Process

This article shows you those 2 processes. You will notice how Options Analysis can be introduced at the start of the idea generating process or it can come at the very end of the process.

Here is the first way to think about coming up with a Great Options Trade Idea:

1. Ending with the Options Analysis

#1 THE USUAL WAY INVESTORS BUY OPTIONS

Tools - Getting Started - Process 1

In general, investors use options near the end of their process. They may like a chart, or some data analytics gave them an edge, or there's a fundamental reason that is given them a signal. They can even get their idea from analyzing options data like volatility or skew.

But after getting the directional idea, investors must decide whether that idea is a Great Options Trade Idea or not. How do they do that?

How do YOU do that?

And then how do you decide which option to choose?

To succeed at options, you need to know those answers. If not, you don't have a chance with options over the long-term. 

That's what makes the New Options Chain a game changer. It's a patented tool that finally gives you those answers.

So, if you have your own ideas and simply want to use the New Options Chain as a crutch to give you the right option to trade, then head on over to the New Options Chain feature page >>> HERE.

Tools Home - New Options Chain

But after getting the directional idea, investors must decide whether that idea is an options idea or not. How do they do that?

How do YOU do that?

And then how do you decide which option to choose?

To succeed at options, you need to know those answers. If not, you don't have a chance in the long-term. So I'm clear... This means that you'll lose your money with mathematical certainty.

The New Options Chain is a patented tool that finally gives you those answers.

Tools Home - New Options Chain

Learn more HERE.


Now, here is another way to find a Great Options Trade Idea that starts by looking at the Options Market.

2. Beginning with the Options Analysis

#2 USING UOA TO FIND GREAT TRADING IDEAS

Tools - Getting Started - Process 2

*Note: You can also place the Options Circle again right before the Green Circle as you might use the New Options Chain to use a different Strike Price as the stock may have moved to your benefit.

Unusual Options Activity (UOA) is simply large options flow that is significantly greater than the average size options trade. Since these trades require millions of dollars in capital, they are generally done by large Institutions. Investors look at these trades to gauge the sentiment in a stock and to potentially follow the trade.

When using UOA as a strategy, the options analysis comes at the beginning of the idea. We hunt for UOA to potentially piggyback on the trade idea.

Do we follow every trade blindly?

Of course not.

But you'd be surprised how many investors do just that. They see a large amount of call or put options trade and go buy that option.

Then they tell everyone else and others follow along.

Ultimately, that game is a speed game. And you better make sure (somehow) that you are first in line or you'll be left holding the bag.

That isn't a thinking game.

Tools - Process - Getting Started - chasing UOA

The Process

At OptionsGeek, we learn how to have patience. It's an important part of our Process, where we:

  • Watch the flow. 
  • Find what we are looking for.
  • Analyze those options.
  • Bring in the other Elements.
  • Make our Decision.

As you can imagine, this process can take some time. It can be weeks between seeing the first Unusual Options Activity and making a trade to follow the flow. 

Patience is what makes the process effective. 

I cannot stress enough how important it is to find an Opening Buyer. We focus and rely on the intent behind that buyer's action.    

- Felix Frey

The Initial Goal

With so much options flow, we need to start somewhere. I've created tools that give us the ability to filter the millions of options trades each day down to a select few.

The question becomes: What are we looking for?

We are on the hunt for:

  1. Large trades initiated by an Options Buyer.
  2. An "Opening" trade.
  3. An Options Buyer looking to leverage the direction of the option as opposed to managing the risk-reward of his position. (Example: YES = Buying Calls to Leverage the upside; NO = Buying Calls to get out of Stock)

The first two are not too difficult. The third is a bit trickier because we can't see the stock activity.

But I cannot stress enough how important #1 and #2 are to the process because of the intent behind those actions.

Someone BUYING options to OPEN has a different mindset than someone selling options or buying options to close down a position.

#1 and #2 are the foundation of our process. Remember that!

How to Gain Confidence

Let's be very clear, we will never be 100% sure exactly why someone we don't know is buying an option to open. 

But we can get close to the answer.

To increase our confidence, we incorporate other elements to give us clues. As a reminder, they include:

  • Technical Analysis
  • Basic fundamental analysis or the "story"
  • And, other tools like data analysis.

The UOA is the signal that needs support from these other elements.

Developing a "Story"

I've built the OptionsGeek tools to make it easier to find the large buyers of options. But more importantly, I've made it easier to verify that it was really a buyer.

In addition, the ability to review the Historical Data gives us a more complete picture of what's happening.

So, yes, UOA is just a lot of large options trades.

But if you understand how to read the flow, then UOA becomes a "story."

Watch this video to see the FB story I uncovered just by reading the options flow over a few months.

Final Note - Strategy

It's important to understand that the "Options Game" is a probability game where you'll likely have more losing trades than winners. This means that when you win, you need to win more than when you lose.

More importantly, you should be concerned about the math working over many trades as opposed to any one trade. This is what it means to "shift the odds in your favor."

What I am showing you here are charts that break even over 10 trading ideas. The assumptions are that you invest the same $ amount in each trading idea. For example, if you use $1, then you will invest $1 ten times.

If the trading idea makes 100% and you invested $1, then your profit would be $1. If the trading idea makes 300% and you invested $1, then your profit would be $3.00.

To calculate your total return across all 10 trades, you would simply add all the profits and losses, then divide by $10.00 (or 10 trades x $1 per trade).

The following sequence of trades produces $0 profits or losses over 10 trades. Thus, the total return is 0%.

  •  #1

  • #2

  • #3

  • #4

  • #5

  • #6

Results 1

You win 5 out of 10 trades or 50% of the time. Notice that when you win, you are not winning enough.

Visualize Success 1

Absorb these charts.

Etch them in your memory.

Anything better than these charts and you win!

That is leverage at work. The charts illustrate that you could be profitable with a lower winning percentage, only if you win more when you win.

It also illustrates how 1 big winner makes it very difficult to lose over 10 trades with proper stops.

So, if you are going to buy Options, you must think this way.

Trade Idea Process

Getting Started

Two Processes, Both Valid

A Great Options Trade Idea usually has several elements to it that include, but are not limited to:

  • Options Analysis
  • Technical Analysis (Charts)
  • A Fundamental Story
  • Data Analysis

While there is no specific order that must be followed using these elements, there are two general processes that investors use to find Great Options Trade ideas.

This article shows you those 2 processes. You will notice how Options Analysis can be introduced at the start of the idea generating process or it can come at the very end of the process.

Here is the first way to think about coming up with a Great Options Trade Idea:

1. Ending with the Options Analysis

#1 THE USUAL WAY INVESTORS BUY OPTIONS

Tools - Getting Started - Process 1

In general, investors use options near the end of their process. They may like a chart, or some data analytics gave them an edge, or there's a fundamental reason that is given them a signal. They can even get their idea from analyzing options data like volatility or skew.

But after getting the directional idea, investors must decide whether that idea is a Great Options Trade Idea or not. How do they do that?

How do YOU do that?

And then how do you decide which option to choose?

To succeed at options, you need to know those answers. If not, you don't have a chance with options over the long-term. 

That's what makes the New Options Chain a game changer. It's a patented tool that finally gives you those answers.

So, if you have your own ideas and simply want to use the New Options Chain as a crutch to give you the right option to trade, then head on over to the New Options Chain feature page >>> HERE.

Tools Home - New Options Chain

But after getting the directional idea, investors must decide whether that idea is an options idea or not. How do they do that?

How do YOU do that?

And then how do you decide which option to choose?

To succeed at options, you need to know those answers. If not, you don't have a chance in the long-term. So I'm clear... This means that you'll lose your money with mathematical certainty.

The New Options Chain is a patented tool that finally gives you those answers.

Tools Home - New Options Chain

Learn more HERE.


Now, here is another way to find a Great Options Trade Idea that starts by looking at the Options Market.

2. Beginning with the Options Analysis

#2 USING UOA TO FIND GREAT TRADING IDEAS

Tools - Getting Started - Process 2

*Note: You can also place the Options Circle again right before the Green Circle as you might use the New Options Chain to use a different Strike Price as the stock may have moved to your benefit.

Unusual Options Activity (UOA) is simply large options flow that is significantly greater than the average size options trade. Since these trades require millions of dollars in capital, they are generally done by large Institutions. Investors look at these trades to gauge the sentiment in a stock and to potentially follow the trade.

When using UOA as a strategy, the options analysis comes at the beginning of the idea. We hunt for UOA to potentially piggyback on the trade idea.

Do we follow every trade blindly?

Of course not.

But you'd be surprised how many investors do just that. They see a large amount of call or put options trade and go buy that option.

Then they tell everyone else and others follow along.

Ultimately, that game is a speed game. And you better make sure (somehow) that you are first in line or you'll be left holding the bag.

That isn't a thinking game.

The Process

At OptionsGeek, we learn how to have patience. It's an important part of our Process, where we:

  • Watch the flow. 
  • Find what we are looking for.
  • Analyze those options.
  • Bring in the other Elements.
  • Make our Decision.

As you can imagine, this process can take some time. It can be weeks between seeing the first Unusual Options Activity and making a trade to follow the flow. 

Patience is what makes the process effective. 

I cannot stress enough how important it is to find an Opening Buyer. We focus and rely on the intent behind that buyer's action.    

- Felix Frey

The Initial Goal

With so much options flow, we need to start somewhere. I've created tools that give us the ability to filter the millions of options trades each day down to a select few.

The question becomes: What are we looking for?

We are on the hunt for:

  1. Large trades initiated by an Options Buyer.
  2. An "Opening" trade.
  3. An Options Buyer looking to leverage the direction of the option as opposed to managing the risk-reward of his position. (Example: YES = Buying Calls to Leverage the upside; NO = Buying Calls to get out of Stock)

The first two are not too difficult. The third is a bit trickier because we can't see the stock activity.

But I cannot stress enough how important #1 and #2 are to the process because of the intent behind those actions.

Someone BUYING options to OPEN has a different mindset than someone selling options or buying options to close down a position.

#1 and #2 are the foundation of our process. Remember that!

How to Gain Confidence

Let's be very clear, we will never be 100% sure exactly why someone we don't know is buying an option to open. 

But we can get close to the answer.

To increase our confidence, we incorporate other elements to give us clues. As a reminder, they include:

  • Technical Analysis
  • Basic fundamental analysis or the "story"
  • And, other tools like data analysis.

The UOA is the signal that needs support from these other elements.

Developing a "Story"

I've built the OptionsGeek tools to make it easier to find the large buyers of options. But more importantly, I've made it easier to verify that it was really a buyer.

In addition, the ability to review the Historical Data gives us a more complete picture of what's happening.

So, yes, UOA is just a lot of large options trades.

But if you understand how to read the flow, then UOA becomes a "story."

Watch this video to see the FB story I uncovered just by reading the options flow over a few months.

Final Note - Strategy

It's important to understand that the "Options Game" is a probability game where you'll likely have more losing trades than winners. This means that when you win, you need to win more than when you lose.

More importantly, you should be concerned about the math working over many trades as opposed to any one trade. This is what it means to "shift the odds in your favor."

What I am showing you here are charts that break even over 10 trading ideas. The assumptions are that you invest the same $ amount in each trading idea. For example, if you use $1, then you will invest $1 ten times.

If the trading idea makes 100% and you invested $1, then your profit would be $1. If the trading idea makes 300% and you invested $1, then your profit would be $3.00.

To calculate your total return across all 10 trades, you would simply add all the profits and losses, then divide by $10.00 (or 10 trades x $1 per trade).

The following sequence of trades produces $0 profits or losses over 10 trades. Thus, the total return is 0%.

  •  #1

  • #2

  • #3

  • #4

  • #5

  • #6

Results 1

You win 5 out of 10 trades or 50% of the time. Notice that when you win, you are not winning enough.

Visualize Success 1

Absorb these charts.

Etch them in your memory.

Anything better than these charts and you win!

That is leverage at work. The charts illustrate that you could be profitable with a lower winning percentage, only if you win more when you win.

It also illustrates how 1 big winner makes it very difficult to lose over 10 trades with proper stops.

So, if you are going to buy Options, you must think this way.