Options Activity
What Are unusual options?
Unusual options activity (unusual options) occurs when trading volume for a contract soars or options flow for a sector rises far beyond its average, often because institutional investors believe the price of an asset is ready to move.
In short, unusual options activity can show you where the “smart money” is. Because there’s unusually high interest in an asset, it’s more likely that investors feel that stock will skyrocket, giving them a chance to cash in on an options contract now.
Are you guessing when using this strategy? Yes. Can this strategy yield positive results? In some cases with the right options contract, it can. This is no different than trading stocks, but you’re dealing in corn, soybeans, wheat, crude oil and other underlying assets.
Your next step after uncovering unusual options activity is to research the asset and determine if you feel it will rise in price in the near future (and if there is evidence to support this theory.) A change in option volume is but one indicator of unusual activity, and you simply do not want to hedge your option strategy on a hunch.
Remember, as an investor, you shouldn’t invest based on theories or feelings. You need to see facts that tell you there is a high likelihood of a certain occurrence that would allow you to take advantage and make money. For example, when you see clear evidence that strike price A on put option B is going to result in profits, you can move forward. On the other hand, merely assuming that call option C and trading volume D will give you the right results because you “feel like” they will work is not a good reason to spend your hard-earned money.
Make sure you look out for massive trades from institutional investors because they have the most money to play with and the most stakeholders to please. In essence, they don’t invest on a whim or in a vacuum. An options trade is a calculated bet you’re making based on trading opportunities you may have uncovered.
What is an options calendar?
An options calendar, also commonly called an options expiration calendar, generally lists the dates that exchange traded options expire on, including the popular quarterly expiration dates.
An options calendar might also include bank and exchange holidays, as well as the last trading day and delivery date that corresponds to each listed option series. Some option expiration calendars include expiration dates for volatility products like VIX options that traders might use to speculate on option volatility movements or hedge their volatility exposure with. Remember, options prices are not beholden to these dates, and market performance could change at any time as you approach the expiration date of an existing contract.
- Adjusting Calendar Spreads
- Stock Options
- Option Spreads
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What is the expiration date for options?
The expiration date of an option is the last day that it can be exercised on.
The exercise process involves the buyer (any retail trader) notifying the seller of the option that they wish to use their option to take the associated position in the underlying asset at its contractual strike price from the seller. As an options trader, you have the right to take either stance, even though most traders will close a contract on the trading platform of their choice when the market price is just right.
This so-called assignment notice has to be given to the seller before the time that the option expires on its expiration date for European style options. American style options can be exercised at any point up to and including their expiration date and time. This means you must match your options trading strategy with the assets you’ve chosen.
When should you trade a calendar spread?
Traders can use calendar spreads that involve shorting the near date option contract and buying the long date option contract when they expect the underlying asset to remain fairly stable until after the first option expires. They can also use such a position to profit from a decline in the implied volatility of their shorter term option relative to the implied volatility of their longer term option.
Adjusting Calendar Spreads
You can adjust an existing calendar spread position by closing out 1 or both of its 2 legs that you find undesirable and then opening any additional position that you prefer. Lifting a leg involves completely closing out 1 of the 2 legs in a calendar spread. You can also reduce or increase the notional amount or number of contracts involved in an existing calendar spread.
Stock Options
Stock options consist of financial contracts that give the holder the right — but not the obligation — to buy, in the case of a call option, or sell, in the case of a put option, a certain amount of the underlying stock at a given price on or before the contract’s expiration date.
Stock options listed on U.S. stock exchanges generally have a notional amount of 100 shares of stock. Stock options are also traded in the over the counter (OTC) market with variable notional amounts.
Option Spreads
Option spreads consist of strategies where you purchase 1 option and simultaneously sell another. If both options are call options, the spread is known as a call spread. If both options are puts, then it is called a put spread. If the ratios of the 2 options differ, it is a ratio spread. If the expiration dates of the strategy’s 2 legs differ, it is known as a calendar spread.
Debit Spreads
Debit spreads are option strategies that involve simultaneously buying 1 option and selling another of the same class in such a way that you end up paying a net premium for the strategy.
Credit Spreads
Credit spreads are option strategies that involve buying one option and selling another of the same class and at the same time so that you end up receiving a net premium for the strategy.
Invest in Options Today
As an option buyer, you can enter the market on commodities prices across a range of exchanges, but you need more than the desire to pick up a call option contract. Research today with Benzinga, check out the most recent “unusual” options activity, study the markets carefully and only spend money you can afford to lose. You can also learn more here: Best Options Trading Examples, Benzinga Options School & Best Options Trading Strategies.