Churchill Cap Corp (NYSE: CCIV) stocks saw unusual options activity on Wednesday. The stock price fell to $ 25.26 following the option alert.
- Sentiment: bullish
- Option type: TRADE
- Type of business: PUT
- Expiry date: 2021-07-09
- Exercise price: $ 27.00
- Volume: 635
- Open interest: 1571
Three indications of unusual options activity
One way in which options market activity can be considered unusual is when the volume is unusually above its historical average. Option activity volume refers to the number of contracts traded over a period of time. Open interest is the number of unsettled contracts that have been traded but not yet closed by either counterparty. In other words, open interest represents the amount of contracts that individual parties have entered into but have not yet found a consideration (i.e. a buyer finding a seller or a seller finding a buyer) .
Another indicator of unusual options activity is the negotiation of a contract with an expiration date in the distant future. The extra time until a contract expires usually increases the potential for it to increase its time value and reach its strike price. It is important to consider the time value because it represents the difference between the strike price and the value of the underlying asset.
Contracts with a strike price that is far from the underlying price are also considered unusual because they are defined as “out of the money”. This happens when the underlying price is lower than the strike price of a call option or higher than the strike price of a put option. These transactions are made because the value of the underlying asset is expected to change drastically in the future and the buyer or seller can enjoy a higher profit margin.
Understand the feeling
Options are “bullish” when a call is bought at / near the ask price or a put is sold at / near the bid price. Options are “bearish” when a call is sold at / near the bid price or a put is bought at / near the ask price.
These observations are made without knowing the true intention of the investor in purchasing these options contracts. Activity suggests these strategies, but an observer cannot be sure whether a bettor plays the contract upfront or if the options bettor is hedging a large underlying position in common stocks. In the latter case, bullish option activity may be less significant than a large investor’s exposure to their short position in common stocks.
Trading options with these strategies
Unusual options activity is a profitable strategy that can greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain another tool for making an informed investment decision while taking into account other observations.
For more information on option alerts, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts