fbpx

QQQ
+ 0.35
372.63
+ 0.09%
BTC/USD
-255.42
42555.15
-0.6%
DIA
+ 0.36
347.20
+ 0.1%
SPY
+ 0.78
442.40
+ 0.18%
TLT
-1.45
149.81
-0.98%
GLD
-0.19
163.70
-0.12%

Understanding Gilead Sciences's Unusual Options Activity

July 30, 2021 12:59 pm
Share to Linkedin Share to Twitter Share to Facebook Share to Print License More

On Friday, shares of Gilead Sciences (NASDAQ:GILD) saw unusual options activity. After the option alert, the stock price moved down to $68.66.

  • Sentiment: BEARISH
  • Option Type: SWEEP
  • Trade Type: PUT
  • Expiration Date: 2021-08-06
  • Strike Price: $68.00
  • Volume: 3
  • Open Interest: 4134

Three Signs Of Unusual Options Activity

Extraordinarily large volume (compared to historical averages) is one indication of unusual options market activity. Volume refers to the total number of contracts traded over a given time period when discussing options market activity. The number of unsettled contracts that have been traded, but not yet closed, is called open interest. These contracts are not yet closed because a buyer has not purchased the contract, or a seller has not sold it.

The trading of a contract with an expiration date in the distant future is another sign 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.

Contracts with a strike price far from the underlying price are also considered unusual because they are defined as being “out of the money”. This occurs 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 because the underlying asset value is expected to change dramatically in the future, and the buyer or seller can take advantage of a greater profit margin.

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 options 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

For the latest in financial news, exclusive stories, memes follow Benzinga on Twitter, Facebook & Instagram. For the best interviews, stock market talk & videos, subscribe to Benzinga Podcasts and our YouTube channel.

Posted-In:

Movers

Related Articles

This Cancer Screening Company Has A Better 5-Year Return Than Pfizer, Johnson & Johnson And Gilead

This Cancer Screening Company Has A Better 5-Year Return Than Pfizer, Johnson & Johnson And Gilead

Small-cap stocks have a history of outperforming large-cap names as they have the potential for rapid growth and have event-driven moves for share prices. A company focused on cancer screening and diagnostic tests has outperformed some of the largest healthcare companies over the last five years and went from small-cap to a market cap of more than $18 billion. read more
Galapagos' Long-Serving CEO Onno Van De Stolpe To Exit After R&D Setbacks

Galapagos' Long-Serving CEO Onno Van De Stolpe To Exit After R&D Setbacks

Stocks That Hit 52-Week Highs On Wednesday

    Before 10 a.m. ET on Wednesday, 77 companies hit new 52-week highs. read more

Stocks That Hit 52-Week Highs On Tuesday

    Before 10 a.m. ET on Tuesday, 55 companies set new 52-week highs. read more