subject: Unusual Options Activity - 4 Easy Tips to Track Options Activity [print this page] Whether you are an individual investor who wants to expand your horizon by moving past the fairly safer confines of the regular stocks, bonds and mutual funds portfolio and cross over to the more speculative and thrill-seeking even though riskier environment of options trading, or if you're the market analyst of a multi-national company looking to hedge the cost on one of your company's main raw materials, it is usually to your advantage to be as well-informed as possible before making that all-important decision whether to take the plunge into the high-reward but also high-risk gambit that is the options trading market.
The oracle of Omaha, Warren Buffet, referred to options as 'financial weapons of mass destruction'. Granting that the options market isn't meant for everybody, for that well-seasoned trader nevertheless, it offers advantages and safety outside the capabilities of other much more conventional securities that are often available in the securities market.
Having an access to a dearth of information that are readily obtainable from the internet at just the speed of thought, it has truly become very easy nowadays to access several applications, resources, charts, graphs along with other information associated to options trading. Do not be lulled into thinking that this is all you've got to do however, simply because for you to have gainful trades you should also have technical and fundamental analyses, together with an awareness of the pertinent developments regarding the underlying assets, like scheduled announcement of earnings, FDA meetings, purchaser conferences, mergers, takeovers, approaching dividend ex-dates, and so on.
But when you are new to the business and faced with a seemingly endless parade of organizations, ticker updates, profiles and interviews, as well as getting bombarded with all sorts of real-time as well as archived info, it will be understandable if in case you stop to ask your self: exactly where, do I start in the midst of all this overwhelming information?
Well, it would be a great idea to begin with a few options which are presently generating all of the chatter and activity within the marketplace. Those select few that for reasons still unknown to you, are presently turning in performances which are much more than their normal daily average. Make no mistake about it, they are certainly out there. It's just that they are not that easy to catch for an untrained eye.
So, how do you spot unusual options activity?
Following are some important guidelines to keep in mind if you would like to piggyback on that potential goldmine:
Options Volume
Your curiosity should be aroused if a particular company is presently trading at triple its typical every day volume with regards to either calls, puts, and also open interest, especially if the attention is concentrated on the shorter-term options and mostly to just one or two strike prices.
Keep a close eye on large blocks of contracts changing hands and note the time that they had been traded because this usually signifies that institutional investors are getting involved and not just your run of the mill retail investors. These big boys are synonymous with "smart money" because they usually possess powerful information which the rest of the players in the industry might not be aware of in the moment. You can ride the "smart money" as soon as you have confirmed that the transactions were not just components of a spread trade, a rollover, or some other complex method (which, most of the time just means that there's really nothing extraordinary happening).
Implied Volatility
Unlike stocks, which has a clearly defined number of shares, options possess a practically unlimited supply. But if buyers are prepared to shell out additional 10 or 20 cents premium on a $1 item even though there seems to be no considerable movement within the fundamental stock, then that suggests that there is a higher demand than willingness to sell for that specific contract and something is definitely brewing. You should immediately ask around and probe the market for the reason of this, after which make your move accordingly as soon as you have confirmed most likely catalyst for all this action.
Pending News, FDA Occasions Or Upcoming Catalyst
In spite of all the obtainable option trading software programs, resources, charts and graphs at our disposal, they are still not 100% dependable when it comes to accurately predicting the price movements of options contracts. The reason for this is really simple, the market is still being ran and controlled by human beings who by all accounts, are extremely emotional creatures. This creates a lot of room for a lot of erratic and unexplainable trends that we observe in the market from time to time.
So you have to be technically sound and fundamentally adept, but at the same time be continuously on the lookout for substantial information, events and developments regarding your underlying security such as mergers, takeovers, new management, earnings report, and so forth. These have the potential to create emotional reactions which could have a direct effect on the perceived worth of your security. Don't be caught with your guard down, you may just suddenly realize that a snowball has been formed and that it completely takes the market for a ride.
Look Over The Shoulders of Experts
Finally, modern day technology, in particular the internet, has made it really convenient for us to gain entry into vast quantities of helpful resources and information which may trick any wide-eyed new investor such as yourself into believing that you can tread the waters on your own, armed with just these collection of resources and information in hand. Be warned however, there is definitely more than meets the eye when trading overly complicated derivatives like options. Be very wary if you plan on using more than your risk-capital, because you can possibly lose everything that you have worked hard to build on if you're not careful.
Oftentimes, it is more advantageous for you to just let the experts deal with the complicated stuff, like understanding how to look for unusual options activity, and you can just concentrate on reaping the rewards of much better trade decisions as a result of competently analyzed and well-researched market information. You will find selected web sites that can help you with ideas, strategies,
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