Market Overview

Unusual Options Activity Insight: Costco Wholesale

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Costco Wholesale (NASDAQ: COST) shares experienced unusual options activity on Wednesday. The stock price moved up to $336.69 following the option alert.

  • Sentiment: BEARISH
  • Option Type: TRADE
  • Trade Type: PUT
  • Expiration Date: 2020-09-11
  • Strike Price: $320.00
  • Volume: 391
  • Open Interest: 58

3 Signs of Unusual Options Activity

One way options activity can be considered unusual is when volume is exceptionally high. The volume of options activity refers to the number of shares contracts traded for a day. Unsettled contracts that have been traded, but not yet closed, are called open interest. These contracts are not closed because a buyer has not purchased a contract, or a seller has not sold it.

Another gauge of unusual options activity is a contract with an expiration date in the distant future. Additional time until a contract expires generally increases the potential for it to grow its time value and reach its strike price. It is important to consider time value 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.

Bullish and Bearish Sentiments

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 options activity may be less meaningful than the exposure a large investor has on their short position in common stock.

Using These Options Strategies

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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Posted-In: Options Markets