In this blog post we are going to cover a unique type of data, the good stuff, called Unusual Stock Options Activity. We’re going to explain what this data is, where to get it, and how to maximize the value you get from it.
To state the obvious, unusual options activity encompasses all of the out of the ordinary trades that occur during the daily option’s order flow. This irregular, or unusual as it is often denoted, options activity can be useful as a predictive tool to determine upcoming stock price moves for a particular underlying symbol. Whether you're a money manager, a fintech education platform, or just an individual investor looking for an edge, incorporating unusual options data into your investment strategy can be a helpful factor to drive alpha.
This is because the options market focuses solely on the future performance of a stock and as such, out of the ordinary behavior can provide highly valuable and highly profitable signals when leveraged correctly. To highlight this point, let’s talk through an example.
Imagine an investor has done an inordinate amount of research on Netflix and predicts that the company will face significant headwinds in the future, such as subscriptions suddenly decreasing as competition from other streaming platforms creeps into play, crazy stuff to imagine occurring for such a streaming juggernaut.
Well, this investor may then use this information to take a bearish position in Netflix by purchasing numerous put contracts or writing tons of call contracts that they are confident will go unfilled by expiration. If the information they have been diving into isn’t part of the mainstream news or analyst price targets (or as the case with Netflix, just not taken seriously enough by the Street) then it hasn’t been baked into the price of the stock yet and such asymmetrical information can be helpful to know before it is released in the latest earnings call.
Yet, you don’t know this investor, you can’t call him up or knock on his door and ask for his insights. However, what you can do is scan the option’s market for unusual activity such as a purchase of $200K worth of out-of-the-money puts on Netflix. Flagging this significant options activity to incorporate into your daily trading models is exactly the kind of data made available through our options data packages here at Intrinio.
Not all financial data providers offer options data, and even fewer offer unusual stock options activity. But at Intrinio, we do. You can track unusual options activity via our Web API and our unusual activity endpoint. To retrieve unusual options data, you simply provide the ticker symbol for the underlying security you are interested in (for example, Microsoft - MSFT) and retrieve all unusual activity for that security on that day. Or, if you want to subscribe to the entire universe of securities we have a feed for that too.
Plus if you happen to miss some trades in real-time don’t worry, since we have intraday and end-of-day endpoints available to ensure this data is always at your fingertips.
The Intrinio unusual options activity endpoint provides the following data for each unusual trade:
● Type (block, sweep, or large)
● Total value
● Total size
● Average price
● Contract ID
● Ask at execution
● Bid at execution
● Underlying price at execution
An options sweep is a market order split across all exchanges to take advantage of the best prices for a given option contract on each individual exchange. Bullish options sweep activity happens when a buy order fills near the ask price on each exchange, indicating the buyer was willing to pay more than the bid/mid price for a particular contract to fill their order as quickly and effectively as possible.
On the contrary, bearish options sweep activity occurs when a sell order fills near the bid price on each exchange, indicating the seller wanted to exit the position hastily and was not concerned with waiting to get the best price for their contracts. Essentially all sweep orders (including those referenced above) suggest that the acting party is anticipating a significant move, in one direction or the other, in the underlying stock in the near future and is wanting to enter or exit their position quickly.
However, there is a caveat with unusual options activity: it's only one side of the story. An institution may be purchasing or selling option contracts to hedge a given position they already have in play, not because they are bullish and bearish on that particular stock. Thus, unusual options activity should always be evaluated with other considerations before making a trading decision.
Intrinio has a threshold for sweeps and will only display trades of $3,000 or more. Since sweeps usually encompass multiple trades, the timestamp for sweeps will represent the time of the first trade in the series.
Option block orders are large, privately negotiated orders executed off the public option exchanges. These orders are flagged by Intrinio by the inherently immense notional value of the corresponding premiums paid, or collected, and significant order size.
Intrinio categorizes any trades detected that are over $100,000 as “Large.” You can think of unusual activity in this category as a way to track the large option activity of sophisticated investors, typically referred to as “smart money.” In addition to blocks and sweeps, large trades complete the full picture of “unusual stock options activity” and can give you a unique perspective on future stock price movements.
Unusual options activity data can be very helpful in determining the direction of the market for a particular company or sector.
On May 21 of 2021, there were reports of extremely high unusual stock options activity on AMC Entertainment Holdings (AMC). By June 2, the stock price had risen by more than 417%.
Similarly, Market Rebellion reported unusual activity on GameStop Corp (GME) on December 23, 2020. Over the next month or so, the underlying stock price went from around $20 to around $326 (an increase of about 1,589%).
In the first week of August in 2021, Robinhood Markets Inc (HOOD) displayed high unusual options activity, and on the very same day the stock price rose by more than 50%.
These return numbers are enormous and are certainly not representative of normal market flow. It’s also important to note that not all unusual options flags result in return - most of them don’t, and it takes sophisticated investors and/or algorithms to be able to detect signal from the noise. However, they still highlight the power that unusual options activity data gives to the investing community at large.
Ok, now you know what Unusual Stock Options Activity is, how to find it, how to use it, and how to maximize your value from it, but how can you start leveraging this?
At Intrinio, we offer the best value Unusual Stock Options Activity as part of our Silver and Gold Options data packages. Between our real-time/delayed/end-of-day/historical formats we are confident that you can find a plan that works best for you. Not to mention, we provide sentiment analysis and underlying price execution on all of our unusual option trades which will come in handy for any trading algorithm, or as a unique feature for your app. Our unusual options activity dataset bundles well with our other data feed packages that can be easily bundled on. For example, you can easily derive whether a contract is “in the money” or “out of the money,” and whether sentiments are bearish or bullish, by combining this dataset with real-time data from our equities data packages to check the spot price of the underlying security.
Remember, at Intrinio, getting access to data like this is easy. We make it fast, affordable, and most importantly, scalable. You can start small, and we can grow together. As a cherry on top, we have the best developer tools (think powerful API, clear documentation, useful SDKs, code samples, tutorials & more) and instant chat support. You can hop on our website, www.intrinio.com, to chat with us, sign up, and test it out. We can’t wait to see what you build!