“Unusual” Options Activity has been a hot topic in the markets over recent years.
But here’s the thing.
There’s no such thing as “unusual” options activity.
The idea that something is unusual, is well, saying that it is rare or uncommon. Neither of which are the case when it comes to all of the UOA scanners out there.
It’s actually laughable how the term, Unusual Options Activity, has become so overused.
And today, we are going to Myth Bust this concept and see how to properly analyze options activity…
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Just because there’s a big, one-off options trade, that doesn’t mean it is unusual. Or just because it is urgent or speculative, doesn’t mean it is unusual.
This just means it is an options trade.
All options trades are speculative in nature. And it’s very common for them to be large in size and urgent when placed. This is par for the course when it comes to options trades.
But it hasn’t stopped pundit after pundit touting their Unusual Options Activity scanner as a brilliant and profitable way to piggyback on Wall Street.
Look, I know it is attractive to think that someone knows what is about to happen, makes a massively public options trade around that expected move, and bang, everyone is making money.
I get it.
That sales pitch is hard to resist.
Afterall, for a small price you too can have access to this incredible unusual options scanner to follow along.
There’s just one problem – that approach doesn’t work.
Just like how there’s no one-stop indicator or approach to the market that is going to give you an edge.
It doesn’t exist.
Outside of buying and holding, Warren Buffett style, you can’t take the simple way out.
However, there is a strategy way to approach options activity to use this “fly-on-the-wall” approach to trading.
Be a Fly-on-the-Wall of Wall Street
The data flowing through, which is publicly available, is essentially like being a fly on the wall of Wall Street’s biggest firms.
But it’s more like being a million flies on the wall at all of the Wall Street firms – it’s overwhelming.
Hence, the introduction of “unusual” options activity. It brings the notion that they are filtering out the noise and finding unusual trades that stand out.
This is true, but only partially.
They are filtering out tons of options trades by incorporating a scanner, but it doesn’t make them unusual.
Instead, we have rethought the entire focus on options activity.
And it starts at the term, unusual options activity.
What we want, is Big Money Trades that we can find through a proprietary Options Activity Scanner (OAS).
By using a specialized OAS to pinpoint exactly what options we need to focus on, we single out the noise in the market and zero in on a handful of meaningful trades that are set to deliver profits.
It’s the backbone of a new research trading service that our firm is set to launch, AlphaX Options.
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S.E.A.L. Alpha Team