The Importance of Stock Option Activity
Stock options are for the big boys. Some use them to hedge, some use them for exotic bets, and some just use stock options as a way to rev up their portfolio’s performance. But no matter how stock options are used, you better take notice. There is possibly no better indicator than that of stock options activity.
How to Find Stock Option Activity
Luckily, investors have the advantage in data mining. That is, other people are willing to do it for you! A quick Google News search for “stock option activity” will find you plenty of news articles. Now its up to you to decipher the data…
Put to Call Ratio
The Put to Call ratio is the most important measure of stock option activity. The indicator is relatively simple, it is calculated by dividing the number of puts bought by the number of calls purchased. This ratio will help you find how bullish/bearish the market is, as a high put to call ratio shows that investors are bearish while a low ratio shows that investors are bearish.
How Investors Conduct the Trade
Websites that report unusual stock option activity usually have a good idea of what the trader was hoping to accomplish by dissecting the real time data. For example, if a trader bought and sold puts and calls within a matter of seconds, the investor might be opting for a straddle. If there was a large put order, you’d know someone went bearish.
Why it’s Important
Stock option activity is vital to predicting the markets. Premiums, the put to call ratio, and stock and stock option combined volume can show you everything you need to know about what the “big boys” are doing in the market. This information is even more important ahead of earnings, and it’s rarely wrong!
