Leveraging Options Data To Identify Retail Demand And Directional Flow

The U.S. listed-options market has seen unprecedented growth in recent years. In 2021, the average daily volume topped 39 million contracts, 34% above 2020 and more than double the 2019 volume. Underlying factors contributing to these increases include widespread retail adoption, lower commissions, low interest rates, and a significant increase in listed products and short-term expiration cycles.  

Figure 1*

One direct consequence of increased market activity is a sharp increase in the frequency and density of data produced by exchanges and market participants. In response to industry demand, Cboe Global Markets® developed the Option Sentiment data set to facilitate quantitative and qualitative order flow analysis by traders, brokers and research teams.

This data set, available in historical and end-of-day formats, is assembled from trade-level information of nearly five million executions daily and supports daily and intraday identification of unusual option activity, directional bias, volatility changes and indications of retail interest and stock-loan considerations. Baseline averages are included for contextualization of activity, while open interest data supports concentration analysis.

One straightforward use-case of this data examines the daily demand for puts and calls relative to the underlying share price. The chart below uses publicly traded company Roku, Inc. (ROKU) as an example. Selecting three of the 70 columns of data available in a three-month sample set, we plot the call demand—contracts  trading offer-side that are not part of complex orders—against  put demand, with the underlying price on the secondary axis. A notable spike in ‘calls bought’ can be seen on December 8th when shares lifted nearly $40 from $216.60 to $256.08, an 18% rise.

Figure 2*

Drawing from additional columns in the Option Sentiment data set that break order flow into trade size groups, a notable increase in small lot trades can be identified—this is typically associated with retail activity. 

Figure 3*

Lastly, a directional bias can be charted from the net option delta data, which translates directional option flow into share-equivalent activity, suggesting a significant shift from bullish to bearish bias on December 9, immediately following the upside move that was accompanied by heavy small-sized call flow.

Figure 4*

Additional metrics included in the Option Sentiment data set that may be illustrative for traders and analysts include volatility and skew across products and over time, total traded option vega, implied borrow (short-stock loan rates), and largest volatility movers. 

Option Sentiment data may be purchased for the entire market or selected underlying symbols. For a full list of columns included and to download sample data, visit Cboe DataShop.

*Cboe DataShop Option Sentiment Data, Cboe LiveVol, LLC

There are important risks associated with transacting in any of the Cboe Company products discussed here. Before engaging in any transactions in those products, it is important for market participants to carefully review the disclosures and disclaimers contained at https://www.cboe.com/options_futures_disclaimers.

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