What Are Options Sweeps?

Stock options prices can move quickly, and if you make a large order, it’s possible to end up with a partial order instead. Options sweeps solve this problem and allow you to buy options at the best possible price. Some traders pay more for their options contracts with an options sweep than waiting for each contract to get purchased at the midpoint, but it helps them capitalize on dramatic stock price movements if they happen quickly. This article will explore how options sweeps work and when they may make sense for you.

What Are Options Sweeps

Most options traders do not use options sweeps for their orders. These sweep-to-fill orders are reserved for sizable options trading activity. Even if you never do an options sweep yourself, seeing option sweeps take place in real-time can inform your trading decisions. Options sweeps are strong statements from high-net-worth investors about a stock’s future direction.

Call Sweeps

Call sweeps occur when a trader orders a large number of calls. This trade size is often too large for every contract to get purchased at the same time, so the options broker conducts this transaction as multiple mini transactions at the best possible price. If an options trader wants to buy 1,000 call contracts, the broker may initiate 20 purchases of 50 call contracts apiece.

Put Sweeps

Put sweeps have the same dynamic as call sweeps. Put sweeps occur when an institution or high-net-worth trader orders a large number of puts. A trader may purchase 5,000 put options and receive them in smaller orders, usually a few milliseconds apart. The trader will acquire their 5,000 options through 500 purchases of 10 option contracts instead of a single purchase of 5,000 put options. It may take place through 100 purchases of 50 put options or another arrangement, but it won’t take place through a single order that contains 5,000 put options.

Sweep Options vs. Block Options

Sweep options and block options both involve the accumulation of many options contracts. While sweep options take place in the public market, block options get negotiated in the private market. Institutional investors and high-net-worth individuals partake in these trading strategies.

Importance of Using Options Sweeps

Options sweeps allow you to purchase a large number of options contracts quickly. Waiting for a call or put to hit your price can result in a missed opportunity. The contract’s value can rise 20% while you still have your limit price set up, waiting for the price to drop. Options sweeps allow you to embrace an options position sooner without the fear of missing out on a partially filled order that remains that way. 

Traders can also monitor options sweeps in the market by monitoring the option flow for an asset. This data allows a trader to see what smart money thinks of an option in the short term. It’s possible to see large options trading activity along with strike prices and expiration dates.

Things to Remember When Using Options Sweeps

Options sweeping helps you enter a large position without worrying about getting your order partially filled or having to purchase the remaining contracts at a higher price. Any options sweep exposes you to the same risks as any options investor, but you will have more capital on the line. Some options traders have more flexibility to make large purchases and see how they work out, but it’s not smart for everyone to put that much capital into options. Traders should assess their portfolio diversification and spread their funds across multiple assets instead of putting most of their capital into an options sweep for a single position.

Looking at options flow gives a trader more insights into what big players in the market think about an asset leading up to key events like earnings. These individuals and institutions have a larger sway on prices and do the most research before making purchases, but the smart money isn’t always correct. 

Bullish and bearish options sweeps that get displayed on an options order flow can build a false sense of security, and you won’t know the trader’s strategy. Some traders may buy a large number of calls right before earnings. Under this scenario, you may believe smart money knows something you don’t, and you may decide to buy calls. These traders may exit the position right before earnings to secure a gain, and you won’t know it. Others may want to get their options assigned.

Most financial institutions and high-net-worth individuals can afford to be wrong with their options positions. Day traders who put most of their money into a single options position based on order flow do not have that same luxury. Institutions and high-net-worth individuals can tap into more data and sources, but they’re not guaranteed to be correct. 

Using Options Sweeps to Your Advantage

Options sweeps allow traders to quickly build up an options position. The size and timing of this order can tip you off on how institutions and accredited investors feel about the underlying stock. A trader should never rely on options order flow alone to make decisions, but it can be a useful indicator if you combine it with technical and fundamental analysis.

Frequently Asked Questions