Summer Camp Week 4: Unusual Options Activity
Many hedge funds, institutions and big traders use options as a hedging tool. Given the stock market is forward-looking and stock investors are often influenced by news and rumours, I can pick up changes in market sentiments about a stock, a sector or the overall market early by monitoring unusual options activity.
A much higher than average options volume can help me to identify potential opportunities for trading. Long calls and short puts are bullish while short calls and long puts are bearish. A higher premium signifies higher implied volatility i.e. the market expects greater volatility in the stock price. A short expiration date means the trader is expecting the movement in stock price to happen very soon while a long expiration date means the opposite.
A much higher than average options volume can help me to identify potential opportunities for trading. Long calls and short puts are bullish while short calls and long puts are bearish. A higher premium signifies higher implied volatility i.e. the market expects greater volatility in the stock price. A short expiration date means the trader is expecting the movement in stock price to happen very soon while a long expiration date means the opposite.
The limitations of monitoring options activity cannot be overemphasised. Options activity indicates market perceptions but the real market does not always behave as expected so trade with care and don’t invest more than what you can lose.
Disclaimer: The above is just sharing of my amateur knowledge and should not be taken as investment advice. Please do your own due diligence and consult your financial adviser before making any investment or financial decisions.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Cyberboyz1010 : Nice
Bkind : Agree