How to Effectively Use ADVFN’s Live Options Flow
In recent years, options flow analysis has garnered significant attention within the trading community — and with good reason. As the retail trading sector experiences a surge in trading volume, traders seek to harness the potential of options flow analysis to discern market sentiment and gain a competitive advantage.
Let’s look at how we can effectively utilize ADVFN’s live options flow data to identify trading opportunities. Given the substantial volume of daily options, a decent grasp of options flow intricacies is essential to differentiate valuable insights from extraneous noise. This article assumes familiarity with call and put options.
An understanding of a few order labels/flags will go a long way in Flow Analysis. 🧑🏫
Side
To determine if a trade was bullish or bearish, one can look at Call/Put + Side. In general:
Bullish: Call at Ask (Quick Filter: Bought)
Bullish: Put at Bid (Quick Filter: Sold)
Bearish: Put at Ask (Quick Filter: Bought)
Bearish: Call at Bid (Quick Filter: Sold)
Premiums (Prems)
This is one of the most interesting columns — it displays the dollar value of the trade. You can spot big trades this way. A $1 million+ trade is considered quite large for a single option trade. We use a quick filter to identify these (more below). Combine this with Bullish/Bearish from Side and you can determine if that trader is bullish or bearish on the company (or ETF/Index).
Exp(Expiration) Date + DTE (Days To Expiration)
It’s critical to keep an eye on these two columns. These note how much time is left on the option. All options expire and the shorter-term, the more explosive they are. If you’re new to options trading, be sure to stick to longer-dated options until you better understand how time decay works. That warning aside, the date is important because it lets you know when the trader is expecting a move by. Is this within a few days? A few months? A couple years? Combine that with what we’ve learned about side and premium and now you’re getting somewhere.
Sweeps
Sweeps pertain to orders that are fragmented into smaller transactions, executed across multiple exchanges. The rationale behind using sweep orders is twofold. First, informed traders expecting a big move might opt for sweep orders to obscure their informational advantage. Given that these orders are executed as numerous modest transactions, the substantial underlying activity often eludes casual observation. Secondly, traders seeking quick order fulfillment frequently opt for sweep orders to leverage liquidity sourced from multiple exchanges. Essentially, sweep orders indicate either a desire to conceal information or an urgency to execute a transaction. These are easily identified on ADVFN’s Options Flow:
Filters — How to Spot Winners 🕵️♀️
As we said earlier, due to the sheer volume of options flow, there’s no way to make sense of it unless you apply filters. We’ve got you covered.
Volume > OI (Volume greater than Open Interest) — enable this one to only show contracts where there is more volume today than open interest. This indicates new, higher interest today in a specific contract than all previous opened contracts. Open Interest is the number of open contracts on any contract. Note: Open interest does not update intraday, only in the evening well after the close.
Sweeps — enable this to spot any Sweep trades (described above). Combine it with your general market sentiment (Calls+Bought or Puts+Bought) to spot these in your preferred direction.
>$1M — enable this to only show trades greater than $1M in value. This will show you what some of the bigger players are doing in the market and on a single-leg will show you trades with very high confidence.
Short Expiry — if you’re looking for something spicy in your life, this is your filter. These have a short amount of time left on them (< 30 days). This is what most retail uses to trade earnings. Earnings can be very tough, so best to avoid those. Look for short expiry, but non-earnings related trades to start.
OTM/ITM — use one of these to up your return potential (but also risk) OR lower your return potential (and risk). OTM is Out of The Money (higher risk). ITM is In The Money (lower risk).
One of the best (and simplest) combinations to use is Calls + Bought + Volume>OI + OTM + 1–45 DTE (advanced filter option) + Single-Leg + Stocks-only. This gives you high confidence trades in bullish direction that aren’t ETFs. See what you can spot here that has some size (>$100,000), do some research as to why this might be the case (upcoming event, chart, news, etc) and watch how they play out within a few days. You can also trade the stock. If you see a lot of trades under this filter coming in for say NVDA, then you know there’s bullish momentum — the stock is fine too and a great way to start, but still leverage Option Flow.
Hedging (for yourself) — another use of Flow is to spot large traders taking hedge positions (OTM puts, for example) ahead of earnings or a big event. If you see a significant amount of this on an equity position you have, it may suggest it’s worth taking a hedge position for yourself to protect the downside. These can be relatively cheap insurance.
I’ve spotted an interesting trade — now what?
This is the fun part! Now you need to figure out why this trader has taken this position (bullish or bearish). First check to see if there are upcoming earnings — this is a typical one. If earnings, then determine if you know enough about the company to play the expected move. Second, check the chart — is this momentum? Bottom? Third, check the news for any upcoming events — it could be anything (earnings, product announcement, monthly sales update, corporate event, FDA announcement, etc). Fourth, check the forums — these can be a fantastic resource of crowd-sourced research and people sharing their ideas and analysis (we have these right here on ADVFN & iHub).
Let’s wrap it up with a few examples
RIVN
On June 30, 2023, flow trades started showing up for 8/18 20 calls under 1.00. The volume was six times the open interest that day. You can see what happened on that chart in the days that followed. Those calls went 8x at the top.
DDOG
On July 7, 2023, flow trades started showing up for Aug 18 100 calls around 7.00. The volume was 3x the open interest — so it was worthy of review. Same story — you can see what happened in the days that followed. The calls more than doubled.
BBIO
On July 14, 2023 within about 20 minutes left on the clock for the week, a trade showed up for $300,000, 1 week out, and OTM. On Monday, they announced positive drug trial news. The calls went 5x.
Flow is an incredible tool — try doing some paper trades first and see how it works for you.
Best of luck out there! 💰
