Option Flow

Option flow shows real-time options trades hitting the market. It helps you see large buyers or sellers, strikes, expirations, and prices. You can spot patterns, compare volume to open interest, and gauge sentiment. Use it as input. Not a signal by itself.

What is option flow?

• A stream of options prints: contract, side, size, price, time.
• Context: underlying price, NBBO, trade vs bid/ask, and implied volatility.
• Tags often shown: sweep, block, tied, opening/closing (inferred), spread.
• Metrics that matter:
  • Size (contracts) and premium ($ contracts × price × 100).
  • Delta and delta-adjusted notional (contracts × 100 × stock × delta).
  • IV change and skew.
  • Volume vs prior open interest.

Why it matters for options traders

• Surface big risk transfers. Large, urgent orders can hint at intent.
• See where traders pay the ask or hit the bid.
• Track repeat sweeps across venues and timestamps.
• Separate speculation vs hedge with context.
• Align ideas with liquidity, IV, and Greeks.
• Manage risk better by sizing to premium and delta.

Step-by-step with concrete numbers

1) Spot a notable print

• Example: AMD 2025-12-19 170C.
• 8,000 contracts at $2.50 on the ask. Stock $140.
• Premium paid: 8,000 × $2.50 × 100 = $2,000,000.
• Prior open interest: 1,200. Same-day option volume: 8,100.
• Inference: Mostly opening (confirm with next-day OI).
• Delta ≈ 0.18. IV up 2.5 points.

2) Quantify exposure

• Delta-adjusted notional:
  • 8,000 × 100 × $140 × 0.18 = $20,160,000.
• Breakeven at expiry: 170 + 2.50 = $172.50.
• Time to expiry: ~15 months. Theta risk is real.

3) Check for follow-through

• Look for additional sweeps in same strike/expiry.
• Note timestamps, venues, and whether trades lift the ask.
• Watch IV trend and stock reaction.

4) Form a hypothesis

• Possible read: bullish speculation into product cycle.
• Risks: could be a hedge against short stock or short puts.
• Verify catalysts: earnings dates, events, macro.

5) Translate to a trade (example math)

• Conservative alternative: 170/185 call spread.
• Pay $1.10 debit (example). Width = $15.
• Max risk: $110 per spread.
• Max reward: ($15 − $1.10) × 100 = $1,390 per spread if AMD ≥ $185 at expiry.
• Upside if AMD rises and IV holds. Loss capped if wrong.

Common mistakes & risk

• Chasing every “unusual” print. Many are hedges, not bets.
• Ignoring opening vs closing. Confirm with next-day OI.
• Treating bid/ask prints as absolute. Complex/tied orders can invert reads.
• Confusing notional with risk. Use delta-adjusted notional.
• Skipping IV context. Earnings can crush IV.
• Oversizing on illiquid strikes with wide spreads.
• Trading option flow alone without a plan or stops.

Analyze with ImpliedOptions

• See recent option flow: https://impliedoptions.com/flow
• Filter and sort by ticker, size, strike, expiration, and side.
• Add context with Greeks and IV to avoid false reads.
• Turn ideas into defined-risk structures:
  • Build in the Strategy Builder: Strategy Builder
  • Model outcomes and P/L ranges: Profit Calculator
• Best practice:
  • Tag catalysts and timeframes.
  • Set max loss per idea.
  • Revisit after OI updates.

FAQ

• What is the difference between option flow and unusual options activity?

  • Option flow is all prints. Unusual options activity is a filter for outsized or atypical prints.

• How can I tell if trades are opening or closing?

  • Compare volume to prior open interest. Confirm with next-day OI. Tape alone can be misleading.

• Are sweeps more important than blocks?

  • Sweeps show urgency across venues. Blocks can be negotiated and tied. Both need context.

• Does option flow tell me direction?

  • Not always. Prints at the ask often imply buys, but hedges and multi-leg orders can mask intent.

• Should I trade solely on option flow?

  • No. Combine flow with fundamentals, technicals, IV, and risk controls before acting.