Unusual Options Activity is popular data some traders like to use when informing their trading decision. While there are lots of regular options trades that occur everyday, unusual options activity is when abnormally large options trades are made, usually as a large bet or for hedging. But, how does this activity fit into your options trading strategy?
What is Unusual Options Activity?
Unusual options activity, also known as UOA, occurs when there is an unusually large number of options traded for a given stock. It could be an indication that someone is making a large and aggressive bullish or bearish bet on a particular stock.
For example, an alert on a stock price you might see an alert to something like this:
Ford Motor Option Alert: Jun 19 $5 Puts Sweep (32) below Bid!: 2025 @ $0.458 vs 108514 OI; Ref=$5.015
Here’s how you’d break this alert down:
- Jun 19 = Expiration of Option Contract
- $5 = Strike Price of Contract
- Puts = Right to sell
- Sweep = Routed through more than one source
- (32) Number of Sources Activity Was Collected From
- 2025 = Volume of Contracts
- @0.458 = Price of Contract
- 108514 = Open Interest
- $5.015 = Last Price
Read More: Guide to understanding option alerts.
Why Pay Attention to Unusual Options Trades
Even if you don’t trade options yourself, it can be good to pay attention to unusual options activity. In short, it’s a way to see what the “smart money,” or institutional investors, are doing. Option traders who know what they’re doing represent quite a lot of option volume. Plus, option holders who have trading strategy in place reveal that strategy when you check their activity.
If there are several, similar unusual activities, it can give you a better idea of how traders are feeling toward a particular stock, it’s exercise price (strike price) or current option price, especially if there is something like an earnings report that is about to be released.
Remember, these earnings reports impact the stock price of the reporting company, thus impacting options prices. If your stock position was dependent on the downfall of a company that just read off a surprising earnings report, you may need to do some risk management to protect yourself.
Moreover, unusually large options trades are generally made by people who have the capital to do so. On the one hand, Wall Street can impress you with massive movement. On the other hand, you’re likely not sitting on enough capital to make those moves.
Therefore, not all unusual options trades may be bets—it could be someone hedging stocks. If you read up on investment management or speak with an advisor, you can learn more about reviewing market conditions that cause unusual options activity, starting an option chain and securities laws that govern these assets.
Tips to Finding Unusual Options Activity
In order for a stock to be recognized as an unusual options activity, it must show an increased amount in volume compared to its average, generally around 5 times more than its average volume. So, how do we know what to even look for in order to recognize this type of activity?
- All options trades have an expiration date. So, when a stock’s volume has increased tremendously and has a week left until expiration, we can suspect a move to happen before the expiration
- Pay attention to catalysts—there are two different types of catalysts you’ll want to pay attention to:
- Transparent Catalysts: Examples of these can be earnings reports or dividend announcements. Generally, when we notice that unusual activity is occurring before these reports are released we can assume betting or hedging is occurring on the big order.
- Unexpected Catalysts: As the name suggests, these can be considered unplanned events, like CEO announcements or short reports. These types of catalysts can disrupt your trading plan and are much harder to predict.
- Unusual options activity may work best with short-term strategies, so looking at charts and price action can help capture these types of movements.
How to Find Unusual Options Alerts in Benzinga Pro
There are numerous Unusual Options Activity* scanners on the market, and with a Benzinga Pro is one on the market. There are several tools within Benzinga Pro that allow you to search for Unusual Options Activity.
Signals
The Unusual Options Signals tool is designed specifically for helping you to get alerts on unusual options activity. These real-time alerts can be filtered by Watchlists, float, price, volume, and more. You can also choose what type of alerts you receive, including desktop, audio, or synthesized voice.
This tool only shows large options trades, including large blocks or sweeps.
Calendar
The Calendar tool allows you to search for unusual options data by date. This is extremely beneficial if your trading plan incorporates the usage of historical data.
The Calendar tool also allows you to get more granular by searching for a variety of filters, including contract type, strike price, midpoint, and more.
Check out the Unusual Options Activity feature for free with a two-week trial of Benzinga Pro—no credit card required.
Final Thoughts
Even if you don’t trade options, unusual options activity alerts can be useful when informing your trading decisions. They can give you ideas, help you see what institutional investors are doing, and more. You don’t have to place unusually large options trades yourself, but you can use it to get a feel for trader sentiment.
Video: Unusual Options Activity
Disclaimer: Benzinga is a news organization and does not provide financial advice and does not issue stock recommendations or offers to buy stock or sell any security. Benzinga Pro is for informational purposes and should not be viewed as recommendations. Benzinga Pro will never tell you whether to buy or sell a stock. It will only inform your trading decisions. You can find our full disclaimer located here.
*Unusual Options Activity available for an additional fee on top of subscription.