Market Overview

Analyzing Fastly's Unusual Options Activity

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On Thursday, shares of Fastly (NYSE: FSLY) saw unusual options activity. After the option activity alert, the stock price moved up to $92.72.

  • Sentiment: BULLISH
  • Option Type: SWEEP
  • Trade Type: CALL
  • Expiration Date: 2020-08-21
  • Strike Price: $115.00
  • Volume: 447
  • Open Interest: 567

3 Ways Options Activity is ‘Unusual’

Extraordinarily large volume is one indication of unusual option activity. Volume refers to the total shares contracts traded in a day when discussing options activity. Contracts that have been traded, but not closed by a counter-party, are called open interest. A purchased contract cannot be considered closed until there exists both a buyer and seller for the option.

A contract with an expiration date in the distant future is another tell of unusual activity. Generally, additional time until a contract expires increases the potential for it to reach its strike price and grow its time value. Time value is important in this context because it represents the difference between the strike price and the value of the underlying asset.

“Out of the money” contracts are unusual because they are purchased with a strike price far from the underlying asset price. “Out of the money” occurs when the underlying price is under the strike price on a call option, or above the strike price on a put option. Buyers and sellers try to take advantage of a large profit margin in these instances because they are expecting the value of the underlying asset to change dramatically in the future.

Understanding Sentiment

  • Options are “bullish” when a call is purchased at/near ask price or a put is sold at/near bid price
  • Options are “bearish” when a call is sold at/near bid price or a put is bought at/near ask price

These observations are made without knowing the investor’s true intent by purchasing these options contracts. The activity is suggestive of these strategies, but an observer cannot be sure if a bettor is playing the contract outright or if the options bettor is hedging a large underlying position in common stock. For the latter case, bullish option activity may be less meaningful than the exposure a large investor has on their short position in common stock.

Using These Strategies to Trade Options

Unusual options activity is an advantageous strategy that may greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain as another tool to make an educated investment decision while taking other observations into account.

For more information to understand options alerts, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts

 

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