If you’ve ever seen Back to the Future II, you’ll recall that Biff Tannen steals a sports almanac from the future and uses it to successfully predict the outcome of several sporting events on his route to becoming rich. Here at Intrinio, we can’t offer you Biff’s almanac (and it likely wouldn’t do you any good, considering it only lists scores through the year 2000). Still, we are excited to announce our unusual options activity dataset, which will serve as a good substitute for your investment needs.
Unusual options activity can be useful as a predictive tool to determine upcoming stock price moves for a particular underlying symbol. Whether you’re the CEO of a portfolio management company or the manager at an AI-powered investment firm, unusual options data can be a helpful factor to improve your confidence regarding future investment decisions.
What is unusual options activity?
To state the obvious, unusual options activity is anything that happens on the options market that seems out of the ordinary. Because the options market focuses solely on the future performance of a particular company, and provides easy access to leverage for individuals and institutions, this information can be highly valuable and highly profitable in the right hands.
Unusual options activity may indicate that investors have done considerable research, leading them to have asymmetric risk/reward viewpoints regarding a specific company. For example, an investor may decide after performing thorough research into Apple Inc that the company is going to be facing significant headwinds in the future, ultimately causing the underlying stock value to falter. This investor may then use this information to take a bearish position in Apple by purchasing numerous put contracts or writing numerous call contracts. Intrinio would flag such significant options activity, and anyone subscribed to Intrinio’s unusual options activity feed would be alerted and able to adjust their investment plans accordingly.
How does Intrinio track unusual options activity?
You can track unusual options activity via our Web API endpoint. Currently, unusual options activity is available for clients who are subscribed to our real-time option data, but will soon be available to our delayed option data clients as well.
This dataset tracks the large option activity of sophisticated investors, typically referred to as “smart money.” To retrieve unusual options data, you simply have to provide the ticker symbol for the underlying security for which you want to listen for unusual activity (for example, Microsoft — MSFT). The endpoint will return all unusual activity for that security on that day.
Since higher-volume option contracts or option chains are going to generate a large number of unusual activity trades a day, we clear the list at the end of every day. Customers who want historical data can pull unusual activity toward the end of each day and cache it.
The unusual options activity endpoint provides the following data for each unusual trade:
- Sweep or block
- Total value
What’s the difference between sweeps and blocks?
An options sweep is a market order split across all exchanges to take advantage of the best prices for a given option contract on each individual exchange.
Bullish options sweep activity is when a buy order fills near the ask price on each exchange, indicating the buyer was willing to pay more than the bid/mid price for a particular contract to fill their order as quickly and effectively as possible.
On the contrary, bearish options sweep activity occurs when a sell order fills near the bid price on each exchange, indicating the seller wanted to exit the position hastily and was not concerned with waiting to get the best price for their contracts.
Essentially all sweep orders (including those referenced above) suggest that the acting party is anticipating a significant move, in one direction or the other, in the underlying stock in the near future.
However, there is a caveat with unusual options activity: it’s only one side of the story. An institution may be purchasing or selling option contracts to hedge a given position they already have in play, not because they are bullish and bearish on that particular stock. Thus, unusual options activity should always be evaluated with other considerations before making a trading decision.
Intrinio has a threshold for sweeps and will only display trades of $3,000 or more. Since sweeps usually encompass multiple trades, the timestamp for sweeps will represent the time of the first trade in the series.
Option block orders are large, privately negotiated orders executed off the public option exchanges. Such orders allow large institutions to fill a significant order without moving the underlying price in an unfavorable direction — i.e., by getting front-run by other institutions and individuals while trying to fill such an order.
These orders are flagged by Intrinio by the inherently immense notional value of the corresponding premiums paid, or collected, and significant order size.
Why would you want unusual options activity data?
Unusual options activity data can be very helpful in determining the direction of the market for a particular company or sector. On May 21, Zack’s Equity Research reported unusual options activity on AMC Entertainment Holdings (AMC). By June 2, the stock price had risen by more than 417%. Similarly, Market Rebellion reported unusual activity on GameStop Corp (GME) on December 23, 2020. Over the next month and change, the underlying stock price went from around $20 to around $326 (an increase of about 1,589%).
Last week, the Wall Street Journal reported unusual options activity on Robinhood Markets Inc (HOOD) the same day that the stock price rose by more than 50%. These return numbers are enormous and are certainly not representative of normal market flow. However, they still highlight the power that unusual options activity data gives to the investing community at large.
Our unusual options activity dataset bundles well with our other data feeds. For example, you can easily derive whether a contract is “in the money” or “out of the money,” and whether sentiments are bearish or bullish, by combining this dataset with our real-time securities data to check the spot price of the underlying security.
Request a consultation with our team to get a demo and free trial of our new unusual options dataset.
Originally published at https://intrinio.com.