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Apple (NASDAQ: AAPL) saw unusual options activity on Thursday. The share price fell to $ 130.01 following the option alert.
- Sentiment: BULLISH
- Option type: SWEEP
- Type of business: APPEL
- Expiry date: 2021-01-15
- Strike price: $ 130.00
- Volume: 36871
- Open interest: 106128
Three signs of unusual options activity
Extremely large volume (compared 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 discussing options market activity. The number of contracts that have been traded, but not yet closed by either counterparty, is called open interest. A contract cannot be considered closed until there is both a buyer and a seller.
Another sign of unusual activity is negotiating a contract with an expiration date in the distant future. Usually, more time until a contract expires gives it more opportunities to reach its strike price and increase its time value. The time value is important to consider because it represents the difference between the strike price and the value of the underlying asset.
Out-of-the-money contracts are unusual because they are bought with a strike price that is far from the price of the underlying asset. “Out of the money” occurs when the underlying price is less than the strike price of a call option or greater than the strike price of a put option. Both buyers and sellers try to take advantage of a large profit margin in these cases as they expect the value of the underlying asset to change drastically in the future.
Bullish and bearish feelings
Options are “bullish” when a call is bought at the ask / near price or a put is sold at the bid / near 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 activity suggests these strategies, these observations are made without knowing the true intentions of the investor when purchasing these options contracts. An observer cannot be sure that the bettor is outright playing the contract or hedging a significant 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 options activity.
Use these strategies to trade options
Unusual options activity is a beneficial 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 understanding option alerts, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts
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