On Monday, shares of Bilibili BILI saw unusual options activity. After the option alert, the stock price moved down to $109.99.
- Sentiment: BEARISH
- Option Type: SWEEP
- Trade Type: PUT
- Expiration Date: 2021-03-19
- Strike Price: $100.00
- Volume: 515
- Open Interest: 18342
Three Indications Of Unusual Options Activity
One way options market activity can be considered unusual is when volume is exceptionally higher than its historical average. The volume of options activity refers to the number of contracts traded over a given time period. Open interest is the number of unsettled contracts that have been traded but not yet closed by either counterparty. In other words, open interest represents the quantity of contracts that individual parties have written but not yet found a counterparty for (i.e. a buyer finding a seller, or a seller finding a buyer).
Another indicator of unusual options activity is the trading of 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.
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.
Trading Options With These 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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