How To Decode Options Flow Like A Pro

July 08, 2024 | [Read Online]( New Post [fb]( [tw]( [in]( [email](mailto:?subject=Post%20from%20Don%27s%20Trading%20Desk&body=New%20Post%3A%20%0A%0Ahttps%3A%2F%2Fdon-kaufman.beehiiv.com%2Fp%2Fnew-post) How To Decode Options Flow Like A Pro If you want true edge trading options then you must understand how the big players operate. No, you don’t need to have a rich uncle or have ties to the hedge fund industry to do this… You just need to understand how to read options flow. And while that might sound intimidating at first, I’ll show you some simple tips which will keep you on the right side of the trade. To help illustrate, we’ll be looking at red-hot Marvell Technology (MRVL). The stats I’m showing are as of 12:30 PM ET, the time of this writing. So let me show you what stands out from the options flow in MRVL. #1: Calls Are Heavily Outpacing Puts Over 51,000 contracts were being traded. Of those 51,000 contracts, more than 45,000 contracts were calls. This appears to be very bullish, but not enough to confirm. I’ll show you how to analyze the call activity next. #2: Were Options Traded on The Bid or Ask Side? Out of those +45,000 call contracts, 12,000 calls were traded at or below the bid. When you are selling options at the bid, you are trying to get in or out the fastest way possible. Why? Because if you weren’t you’d try to “work the order” and get filled at the “mid-point,” somewhere between the bid and the ask price. That’s why selling calls at the bid or below is often referred to as bearish option flow. On the other hand, we saw more than 19,000 were traded at the ask or above. When you are hitting the ask you are trying to get in at the most expensive price offered. Obviously, this is seen as bullish. So 43% of the call volume is traded at the ask or above, which is very bullish. Now, let’s look at what’s happening on the put side. About 33% of the puts traded at or below the bid price. Remember, this is an indication that puts are being sold, and can be viewed as bullish options activity. On the other hand, 30% of the put activity was traded at the ask or above. This is viewed as bearish activity because traders are buying puts at the most expensive price available. And although the put activity is much smaller than the call activity, it is worth noting that too appears to be bullish. #3: Are Options Cheap Or Expensive? There are several ways to analyze an option to see if it’s cheap or expensive. And some of them can be pretty complicated and math heavy. But to keep things simple, I think an easy way to do it is simply compare the implied volatility to its 52-week range. In this case, MRVL options are trading at an implied volatility of 43.7%. Which is in the 23rd percentile. In other words, they are relatively cheap. The 52-week high implied volatility is 74% and the low volatility is 22.5%. Generally speaking, if option volatility is low, buying outright options is a viable strategy. If options are relatively expensive, then it’s probably better to trade spreads or [even do a catapult trade.Â]( Final Thought Despite MRVL trading at its yearly highs…today’s options activity tells us that it has more room to run higher. Analyzing options flow isn’t the be-all end-all. But if you start incorporating it into your process I believe it will help you make better options trading decisions. To your success, Don Kaufman P.S. Professor Jeff Bierman is so confident that his Genesis Cog can enhance your trading, he is offering a 90-day unconditional money-back guarantee.  [Click here before this offer vanishesÂ]( [tw]( [yt]( Update your email preferences or unsubscribe [here]( © 2024 Don Kaufman - TheoTrade PO Box 24790 Christiansted, Virgin Islands 00824, Virgin Islands, U.S. [Terms of Service](