How to use unusual options activity to boost your trading strategy
What is unusual options activity?
Unusual options activity refers to a large number of option trades for a particular stock within a short period of time, usually in the range of hundreds of millions to billions of dollars. This type of trading is often done by institutions or insiders, commonly referred to as "smart money". Paying attention to this unusual options activity can easily lead to finding stocks that are rapidly increasing or plummeting in the short term - for example, due to sudden news or even before such news is released, unusual options activity can be tracked.
Why should we pay attention to unusual options activity?
In many cases, unusual options activity has significant reference value. Here's an example:
On May 19, 2020 at 10:11 a.m. PT, Facebook announced the launch of its new product Facebook Shop and the stock price rose accordingly. However, just 10 minutes prior, there was an unusual volume of trades (more than 7,000 contracts) for the May 22 call option with a $220 strike price on Facebook. Ten minutes later, the call option skyrocketed 200%.
How can we detect unusual options activity?
Here we go! I love moomoo.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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BeeDeeVee712 : Good job with this article. This is a great reference page for people new to options trading in general. Even those that know about options trading but weren't sure about "unusual options activity" and if/how they would like to go about utilizing it.
I know for one thing, I wish this article was posted 2 years ago when I first started trading options and after a few weeks of that became curious about the "unusual options activity" tab but it felt too daunting to figure out on my own while still just trying to become more and more familiar with options trading in general.
Very useful article Janice and I recommend anyone considering testing the options waters to check out this post once you believe you have learned the basics of options trading.