I know it’s Saturday and the markets are closed. But I’m out here working on my game, as I work towards my goal of 8-figures in career trading profits (getting close to $7M) before the age of 30.
How have I been able to climb the ranks so fast?
Stay humble and keep a beginners mindset. And believe it or not… I don’t move fast. It wasn’t until the third year I started trading options.
But as I’ve said in the past… the more winning strategies you can add to your toolbox the faster your account can grow.
That said, I want to explore unusual options activity trades more and share that insight with you. But before I do, let me explain what it is and where I stand when it comes to UOA.
Unusual Options Activity Explained
An unusual options order is one that is “relatively” large.
A trader yesterday bought 1750 June SNN 40 calls at $3.50 per contract. When you do the math that is over $610K in options premium, so we know that this is some sort of institution or large investor.
But what makes the order stand out is that it was 109 times larger than the average volume it receives for an entire day! (If you need a more in-depth primer then check this out)
(SNN options rarely trade but yesterday someone bought over 1750 calls, a stock substitute or a hedge?)
How do I use unusual options activity in my trading?
For me, it’s just an indicator. Even if giant calls or puts are bought we don’t know if it’s a hedge, done for misdirection or what… For example, some could be buying calls because they are short the stock.
And since hundreds of these types of trades go off… there is plenty of noise too.
That said, there is information in these trades…
…and if you can stack it with other reasons to be long or short then it’s worth recording and watching.
For example, someone on Wednesday snagged 2500 Uber Jun 7 44.5 calls for $0.20. Now, the stock closed below $44.50 on Friday and those options expired worthless.
However, on Thursday Uber got to $45.75… and those options were probably worth more than 5x their money overnight.
So what am I looking at when I’m observing these types of orders?
Sloppy and aggressive orders.
Scanning for Recklessness
I use an options scanner by a company called Trade Alert. The scanner tells me if the options are bought on the bid/mid/ask. For example, the scanner told me the spread on those Uber options was 10 cents by 20 cents.
In other words, they didn’t even try to work the order and place a limit… but instead paid all the way up.
That said, here are the top UOA orders that stood out on Friday:
1659 SVMK June 17.5 calls @ $0.50
So why does it stand out?
- Options rarely trade on this stock
- Very aggressive order, the spread was $0.25 by $0.50 (reckless).
- $83K in premium spent… probably not a mom and pop investor
- OTM options, the trader is anticipating the move within 13 days or they expire worthless
- Volume above open interest which indicates its a new position
- This trade was done 3 minutes before the market closed on Friday… Hmmmmm
Now, SurveyMonkey (SVMK) is a global survey software company with over 17M active users and allow 350K+ organizations to figure out how to deliver better customer experience.
From a fundamental standpoint, SVMK has been changing things up and recently hired an Autodesk (ADSK) Executive as its new Chief Financial Officer… that said, the company may be looking for ways to improve its balance sheet, earnings, and revenue.
Not only that, SVMK has an upcoming catalyst event. The company will be presenting at the Nasdaq Investor Conference on June 13, 2019.
From a technical standpoint, SVMK has a bull flag forming.
Not only that, the stock is approaching its open price when it conducted its initial public offering (IPO) a few months ago… and some traders might be thinking it could break above that level.
Remember, the call buyer bought the $17.50 calls expiring in June… so if the bull flag breakout materializes and gets to above its IPO open price… that trader will probably be sitting in some nice profits.
You see, while unusual options activity is a great indicator… conducting your own due diligence and pairing it with catalyst events, as well as charts allows you develop a thesis around a trade… not only that, you should try to use a trading system that works when you’re trading options.