Market Overview

Unusual Options Activity Insight: Verizon Communications

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Verizon Communications (NYSE: VZ) shares experienced unusual options activity on Friday. The stock price moved up to $58.7 following the option alert.

  • Sentiment: BULLISH
  • Option Type: TRADE
  • Trade Type: PUT
  • Expiration Date: 2020-10-16
  • Strike Price: $57.50
  • Volume: 523
  • Open Interest: 1629

3 Ways Options Activity is ‘Unusual’

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. 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.

When a contract has an expiration date in the distant future, it is generally another sign of unusual activity. Usually, additional time until a contract expires allows more opportunity for it to reach its strike price and grow its time value. Time value is important to consider because it represents the difference between the strike price and the value of the underlying asset.

Contracts that are “out of the money” are also indicative of unusual options activity. “Out of the money” contracts occur when the underlying price is under the strike price on a call option, or above the strike price on a put option. These trades are made with the expectation that the value of the underlying asset is going to change dramatically in the future, and buyers and sellers will benefit from a greater profit margin.

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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