Collective Unusual Options Activity is a string of multiple Unusual Options orders of the same sentiment on a single ticker.
Unlike Rapid Unusual Options Activity, which is defined as multiple options flow orders on a specific contract, Collective Unusual Options Activity paints a wider picture on the sentiment of a ticker across multiple strike prices and time frames.
For example, 10 Unusual Options orders on $AAPL 4/29/22 $170 calls within an hour would be considered Rapid Unusual Options Activity.
The combination of 10 Unusual Options orders on $AAPL 4/29 $170 calls, 4 orders on $AAPL 4/29 $180 calls, & 8 orders on $AAPL 5/6 $180 calls would be considered Collective Unusual Options Activity.
When institutions participate in Collective Unusual Options Activity, they are displaying Confidence through aggression.
We see 1,000’s of options flow orders a day. Institutions regularly use the options flow market to send a single order to create spreads, hedge share positions, balance negative positions, and take long shots.
When we are able to identify Collective Unusual Options Activity, however, institutions are highlighting tickers in which they have strong directional sentiment. We can also look to Collective Unusual Options Activity as a powerful tool because it indicates several institutions have the same sentiment of a stock.
On 4/5/21 we detected repeat call buying in Unusual $MSFT flow.The majority of the order were sent within a 3 hour window. What makes this Collective Unusual Options Activity is that a total of 23 orders were detected on 5 different expiration dates, and all 23 orders carried the same sentiment.
DO NOT make the mistake of strictly searching for unusual options activity that aligns with your sentiment.
To avoid confirmation bias, you should check the p/c ratio of the ticker you’re looking to trade before reading into the Collective Unusual Options Activity.
On the day we detected the 23 Unusual Options orders on $MSFT, the p/c ratio was overwhelmingly bullish, helping to validate the Unusual flow’s sentiment.
If you were to see a bearish put/call ratio, it may indicate the unusual options activity is a single institution that’s personal sentiment does not align with the majority of institutions, or that the unusual options activity are hedge plays by institutions with short positions.
Understanding the overall market sentiment on the ticker will help you avoid reading into flow that’s intention isn’t based on confidence in the direction of the orders.
Another useful trick to avoid getting swept up in flow that is not backed with confidence is to only play Unusual Options Activity that is backed by something obvious. What that essentially means is that there is a technical (significant breakout/breakdown level) or fundamental (news) reason that makes it clear why institutions are pursuing the trade.
Most Collective Unusual Options Activity has an obvious technical or news catalyst that is responsible for the institutions showing a strong desire to enter positions, but If you aren’t able to identify a clear reason that’s okay too. Sometimes institution’s have resources the average trader doesn’t have at their disposal that allow them to identify directional catalysts before we can.
The best practice in times where you are unable to identify a directional catalyst is to enter with caution, choosing a smaller position size than you normally would allocate toward a trade that has a clear directional catalyst you can see. You could also choose to wait to enter a trade until the directional catalyst becomes clear.
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