Smart Option Trading CEO On Gaining An Edge With Options: 'They Show The Overall Sentiment'

This special presentation from Mike Pisani is from Benzinga's first-ever virtual Benzinga Options Boot Camp on Saturday, April 18. Check back with Benzinga for more coverage of this all-day event with options trading experts who are giving traders of all experience levels real, dependable strategies for hitting the ground running or expanding an existing portfolio. 

Mike Pisani of Smart Option Trading is a trader whose core strategies are concerned with following smart money traders. Pisani began trading after the Great Recession and quickly adopted options after realizing how efficiently they provide leverage in the markets.

News Is Opportunity

During the Benzinga Options Boot Camp, Pisani highlighted the importance of following news and momentum.

“You’re watching for news and events. Upgrades and downgrades. It could be data on a drug company. These provide a reason for a stock to be in play.”

Pisani On Volume, Technicals

After using the news to identify securities in play for the upcoming session, Pisani suggests studying their volume.

“Volume is the lifeblood. When volume is above average — and you can see that in the first 5, 10, 15, 20 minutes of the trading day — that will tell you a name is in play either to the upside or downside.”

Increased volume suggests large speculative funds or institutions are participating and emboldens the notion a security will extend directionally, he said. 

Acting on the news and volume is dependent on the market's technical structure, Pisani said. 

“You don’t want to try to chase things up or down. Technical setups tell us where we should be looking at stocks and where we should be more careful with them. Is this stock about to break down? Is this stock about to break out?”

Options Provide An Edge, Pisani Says 

Once a trader has identified a high-volume security that’s been in the news and has a convincing technical setup, Pisani suggests looking at options.

“The great thing about options is they also show the overall sentiment of the market,” Pisani said. “It’s often an indicator of momentum coming to, or leaving a name." 

When a name like Advanced Micro Devices Inc AMD or Apple Inc AAPL is in play, they'll keep hitting options throughout the day, "and you’ll see the stock reacting to that flow as it comes in,” he said. 

The power options have in determining sentiment can be seen in recent activity in Zoom Video Communications Inc ZM, Pisani said. 

Amid the COVID-19 pandemic lockdown, Zoom has seen bullish speculative action in the options market alongside a rise in the stock price.

Yet as Zoom approached its highs, bearish flow entered the market and the stock quickly reversed, he said. 

“It works great when you have a great technical setup. You’re looking for that break-up or break down. When you see that flow coming in, it’s just kind of the cherry on top.”

Kaplan also spoke to Boot Camp traders about how to identify and act on leveraged bets by large, confident traders in order to help get on the right side of the market — regardless of the instrument.