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Welcome!. Using Order flow to Trade Options For Direction. Option Pit. Today We Will Cover. What does using “order flow” mean What type of order flow is important Setting up ways to identify interesting trades What moves the needle Look at the price and volatility movement

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  1. Welcome! Using Order flow to Trade Options For Direction Option Pit

  2. Today We Will Cover • What does using “order flow” mean • What type of order flow is important • Setting up ways to identify interesting trades • What moves the needle • Look at the price and volatility movement • Setting up time frame and gamma • Making the trade

  3. What Is Order Flow? • Essentially just the buying and selling of options on any given day but… • Filter out the junk • Use the open interest change wisely • No Ex-Dividend plays

  4. Filter Out The Junk The key to separating good order flow is context

  5. Filter Down to The Trade The key to separating good order flow is context

  6. When Does Open Interest Matter?

  7. When Does Open Interest Matter?

  8. Simple Ex-Dividend All of the dividend action happens the Day before Ex-D. Note the Ex-d date on the SPY. Large ITM volume will be on March 14th. IGNORE IT! Understand the product cycle

  9. What Type of Order Flow Is Important? • Option Buyers- buying smart or stupid stuff • Option Sellers- aggressive OTM trading • Writers versus Common- big buy writers like the more stable stocks

  10. Using OptionVision and LiveVol

  11. What Moves The Needle? Using volatility and option volume

  12. What Moves The Curve? The skew after- .5 vol. point flatter The skew before Going through some methodology for the Option Pit blog

  13. Compare Price & Volume Movement • Is there option movement with no price movement? • Is there price movement with the option movement?

  14. Did The Volume Cause A Ripple?

  15. Set-Up The Time Frame & Gamma. • For our example the time frame was mid-April possibly on the after effects of some news • From a Gamma point of view, the realized volatility was trading above implied volatility

  16. Keep Some Volatility Perspective

  17. Allocation and Trade Gen • Just because the customer trades one option does not mean YOU have to trade the same one • Go to the other strikes and see if a trade with a bit more edge can be found • Allocate a portion of normal size

  18. Generating A Trade Idea • The XLF skew getting flatter made the call spread more interesting • Since the customer is buying the 18.5 calls, sell those and look to buy something against it • The trade ended up getting long XLF Apr 18/18.5 calls spread for .23

  19. Special Offer Take Our Silver Course for 100.00 Off Use Code OP100 info@optionpit.com http://www.optionpit.com/membership/silver 1(888) Trade-01

  20. Thank You!

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