Friday the actions of VF (NYSE: VFC) experienced unusual options activity. After the option alert, the stock price rose to $ 83.09.
- Sentiment: bullish
- Option type: SCAN
- Type of business: APPEL
- Expiry date: 2021-07-30
- Exercise price: $ 82.50
- Volume: 4576
- Open interest: 1127
Three signs of unusual options activity
An extraordinarily large volume (relative to historical averages) is an indication of unusual activity in the options market. Volume refers to the total number of contracts traded over a period of time when examining options market activity. 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 written but have not yet found a consideration (i.e. a buyer finding a seller or a seller finding a buyer) .
Another indicator of unusual activity on options 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.
Out-of-the-money contracts are also indicative of unusual options activity. Out-of-the-money contracts occur when the underlying price is less than the strike price of a call option or greater than the strike price of a put option. These transactions are carried out in the hope that the value of the underlying asset will change drastically in the future, and buyers and sellers will benefit from a greater profit margin.
Bullish and bearish feelings
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.
Although the activity is suggestive of these strategies, these observations are made without knowing the true intentions of the investor when purchasing these options contracts. An observer cannot know for sure whether the bettor is playing the contract up front or whether he is hedging a large underlying position in a common stock. In the latter case, a large investor’s exposure to their short position in common stocks may be more significant than bullish option activity.
Use these strategies to trade options
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