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Ford engine (NYSE: F) saw unusual options activity on Tuesday. The stock price climbed to $ 12.27 following the option alert.
- Sentiment: BULLISH
- Option type: SCAN
- Type of business: APPEL
- Expiry date: 2021-09-17
- Strike price: $ 15.00
- Volume: 26843
- Open interest: 59723
Three Ways Options Activity Is ‘Unusual’
An extraordinarily high volume (compared to historical averages) is an indication of unusual activity in the options market. Volume refers to the total number of contracts traded in a given time period when discussing options market activity. Open interest is the number of unsettled contracts that have been traded but have not yet been closed by either counterparty. In other words, open interest represents the quantity of contracts that individual parties have drawn up but for which no counterpart has yet been found (i.e. a buyer finding a seller or a seller finding a Buyer).
Another indicator of unusual options activity is the negotiation of a contract with an expiration date in the distant future. The extra time until a contract expires usually increases the possibility that it will 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.
Contracts with a strike price that is far from the underlying price are also considered unusual because they are defined as “out of the money”. This happens when the underlying price is lower than the strike price of a call option or higher than the strike price of a put option. These transactions are done because the value of the underlying asset is expected to change drastically in the future and the buyer or seller can enjoy a greater profit margin.
Bullish and bearish feelings
Options are “bullish” when a call is bought at / near the ask price or when a put is sold at / near the bid price. The options are “bearish” when a call is sold at the bid / near price or a put is bought at the ask / near 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 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.
Using these options strategies
Unusual options activity is a beneficial strategy that can greatly reward an investor if they are highly skilled, but for the less experienced trader, this 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
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