📈 Scanning for Success: Option Setups Using Unusual Activity Scans
Using Unusual Option Activity to Discover Trading Opportunities
Hey everyone, 🙌 Today, I want to get into ways to spot promising options trading opportunities: by scanning for unusual options activity. This is a powerful strategy that can give us insights into where the "big money" might be flowing. If you know how to read it, you can ride those waves and potentially profit from the significant shifts before they fully materialize in the stock price.
In this post, I'll cover key indicators like unusual call volume, put volume, open interest, and how I use % OTM calls trading on the offer to find opportunities that others might miss.
🔍 Why Unusual Option Activity Matters
Unusual option activity happens when we see options volume or open interest that's way above the norm. This can mean that something is brewing behind the scenes—maybe insiders know something we don't, or maybe there's an expectation of a big move. Either way, tracking this activity can give us an early look at potential market shifts. Let’s break down how to spot the most relevant opportunities using unusual options activity.
🛠️ Unusual Call Volume: Where the Bulls Are
Call options give buyers the right (but not the obligation) to buy a stock at a set price within a certain timeframe. When we see a big spike in call volume, it's often a sign that traders are positioning themselves for a bullish move in the underlying stock.
What to Look For:
Highest Call Volume Today, Relative to Average: If a stock normally has 10,000 calls traded daily but suddenly has 50,000, it's worth paying attention.
Outliers in Volume: Volume spikes that are 200%, 300%, or even higher compared to the average daily volume can indicate that something big is about to happen.
Example:
Let's say XYZ stock averages 5,000 call contracts daily, but today we see 25,000 contracts traded. That’s a 400% increase—clearly, there's something going on that’s moving the smart money into calls. This could be a reaction to an earnings report, a pending FDA approval, or some other catalyst.
🐻 Unusual Put Volume: Bearish Signals You Can't Ignore
Put options give traders the right to sell a stock at a predetermined price, and high put volume can signal bearish sentiment. Unusual put volume could be a warning that investors expect the stock to drop, or it could be hedge activity ahead of potential bad news.
What to Look For:
High Put Volume Today: If the number of puts traded in a day suddenly spikes, it may mean traders are bracing for a downturn.
Put/Call Ratio Spike: A sudden increase in the put/call ratio can indicate more traders are betting on downside movement.
Example:
Suppose we see a stock that typically trades around 3,000 put contracts daily, but today we notice 12,000 put contracts traded. That's a 400% increase—something major could be on the horizon. Always pair this insight with a quick technical analysis to confirm the trend.
🔒 Unusual Open Interest: Big Money's Hidden Moves
While volume shows what's happening today, open interest tells us how many options contracts are still open and not yet closed or exercised. A surge in open interest can signal that traders are taking long-term positions.
What to Look For:
Open Interest At Least 300% of Average: If a stock typically has 10,000 open contracts, but now it's sitting at 40,000, it’s a good bet that traders are building positions, either bullish or bearish.
Changes in Open Interest + Price Movement: Open interest rising along with the stock price can confirm bullish sentiment while increasing open interest with a falling stock price could signal bearish expectations.
Example:
Take a stock like ABC, which usually has 8,000 open call contracts. Today, we see it jump to 24,000—an increase of 300%. This is a massive signal that traders expect a big move. Again, pair this with technical analysis and news to solidify the setup.
💥 Unusual Option Volume: Overall Option Action
Sometimes both call and put volumes explode, signaling general high activity in the options market for a particular stock. This could suggest volatility or a major event on the horizon.
What to Look For:
High Options Volume Relative to Average: If a stock usually trades 50,000 options but is suddenly trading 200,000, something big could be happening.
Volume Across Calls and Puts: A balanced increase in both call and put volumes can signal indecision or a hedge play, whereas a strong bias in one direction might signal a clearer trend.
Example:
Imagine seeing a stock where the total options volume (both calls and puts) is five times the average. This doesn’t necessarily mean the stock will move in one direction, but it does indicate heightened expectations for volatility, making it a good candidate for a volatility play, like a straddle or strangle.
💡 My Favorite: % OTM Calls on the Offer
Now for one of my favorite setups: Out-of-the-Money (OTM) Calls on the Offer. I look for calls that are being traded heavily on the offer, indicating strong buying interest in OTM options. Here's why I like it—this type of activity often shows that traders are willing to pay a premium for speculative upside, and they're banking on the stock making a big move.
My Favorite Scan:
Minimum 2,000 OTM Calls on Offer: I want to see at least 2,000 OTM calls being traded. This ensures there’s real interest and liquidity.
Stock Price Above $1: I avoid penny stocks and focus on stocks with enough liquidity to make the trade worthwhile.
Highest Percent of OTM Calls on the Offer: I love seeing calls being aggressively bought on the offer—it signals that traders are confident the stock will move up significantly.
Example:
Imagine seeing a stock like XYZ trading at $20, with 5,000 of the $25 OTM calls being scooped up aggressively on the offer. This suggests traders are expecting a big move past $25, and they're willing to pay up for that upside potential. I like to combine this with other bullish signals, such as unusual call volume and positive price action.
Wrapping It Up
Scanning for unusual options activity can be a goldmine of opportunities. When you start seeing outliers in call volume, put volume, open interest, and options traded on the offer, you know there’s something in the works. By layering these signals and cross-checking with technical analysis, you can catch market-moving trades before they take off.
Next time you're scanning, keep these setups in mind. They’ve served me well, and I’m sure they’ll do the same for you. Happy Trading! 🚀-ec
Now, I’d love to hear from you! Have you been tracking unusual options activity? I access these scans through my broker’s platform using Power etrade, under live action scans. If you would like me to write a post on that process, drop a comment below!
*Disclaimer The information in The Options Oracle is my opinion, not financial advice.
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Do unusual whale or black box stock provide like E*trade platform for scanning ?
What scanner do you use to see the unusual options?