Much of what you hear about ‘option order flow’ is simply hindsight, with market pundits speculating as to what traders may or may not have known before placing their trade. While information edge (and even insider trading) make for interesting commentary, they don’t do justice to the layers of analysis institutions put into structuring the vast majority of these unusual trades.
One thesis behind “unusual options activity” is that institutions have
access to vast research and analysis tools to which ordinary investors do not,
and thus observing and mimicking these orders has become a popular
trading strategy for self-directed market participants.
Wouldn’t it be more effective to learn the means by which institutions evaluate potential trades, rather than merely seeking to copy them?
Sure, most people don’t have access to an army of quants in their home office, but that doesn’t mean you can’t learn to perform some of the same type of analysis using tools at your disposal. As the Chinese proverb says, “Give a man a fish, feed him for a day. Teach a man to fish , feed him for a lifetime.”
Written by 3 former institutional traders with over 60 years collective options industry experience, “How to Use Technical Analysis to Read Option Order Flow” explains technical analysis with regard to option order flow.