HOW-TO SERIES

Understanding

Options Flow
Flow Channels, Tracking Orders and Identifying Plays
Understanding Options Flow

DESCRIPTION
Options flow data, also referred to as unusual activity, options sweeps, or simply
order flow, is a very powerful tool that is not widely known about or used among
the options trading community. Even less know how to properly read it, utilize
and apply it to their trading on a daily basis.

Options flow is often used to identify that there could be a potential move
coming in the underlying stock. Activity captured by various option scanners are
usually initiated by "smart money", hedge funds and/or institutional traders
making big bets in the options markets (due to the ability to hold highly
leveraged positions). Thus, we as a community track this activity and can make
several inferences based on the information we are given.

BACKGROUND

As you know, volume is a very important factor in technical analysis when

evaluating the potential direction of a company's share price. The challenge
when looking at volume for stocks however is that you're typically given very
limited information such as the # of shares transacted, an opening price, and
a closing price from the candlestick. Without a wider understanding around
other factors like urgency, whether they paid at or above asking price, etc...
it can be deceptive, noisy, or misleading. 

Another example of the challenges of trying to decipher stock volume is

tracking Dark Pool activity. Dark Pools are massive purchases and sales of
stocks that are hidden from the public, conducted in private trading
exchanges. Due to the transactional privacy of these orders, you are given
even less information to trade from!

What does this have to do with options flow you might be asking? Options
trading follows a different set of regulations thus certain purchases cannot
be hidden from the public and with the increasing accessibility to
technology, this data flow is now available to the everyday options trader.

Now that we know we have access to what smart money and institutional
traders are doing with options, the question is, how do we use this
information towards our advantage?

1 OPTIONS FLOW
OptionsSwing How-To Series
Flow Channels

Flow Channels In Our Server

Let's look at the options flow channels we have within OptionsSwing:

OS Algo
#os-algo: Is a scanner that uses an algorithm made
by OptionsSwing traders. This algorithm has proven
to be very successful and focuses on high-risk and
short expiration trades.

#OS-ALGO Rules
Check the chart and understand the play being made. Chart the trade!
Identify levels where the trade would be invalidated. Set your stops!
Check the spreads and be sure to get a good fill. Don’t chase!
OS ALGO trades are meant to be day trades. Careful swinging too much!
Calls perform better than puts. Watch price action!
Check that the company doesn’t report earnings. Or you could be trapped!
Make sure you are not trading a ‘meme stock’. Treat them as lottos or ignore!
Zero day trades are risky. Treat them as lottos!

Options Flow

#options-flow: Our lite/Discord version of our fully

fledged unusual options activity scanner, OS FLOW.
#lotto-flow: Options flow activity that is less than 35
days out with an OTM strike over 7.5%.
#golden-flow: Our same options scanner but filtered
for purchases larger than $1m+, usually big funds are
the ones taking these trades.

Pro Tip: Use the Discord search feature to look up tickers

(e.g. to see all the results of Amazon for that day.

Tracking Orders

In each one of our flow channels, we configured various options scanners to

track buy orders that are filled at the ask, above the ask, or closer to the ask (if
it's filled between the market). Since these are the types of trades that are
usually bought and not sold.

2 OPTIONS FLOW
OptionsSwing How-To Series
 Orders Data

Types of Orders

Sweep: Orders marked SWEEP are multi-exchange sweep-to-fill orders.

Split: Orders marked SPLIT are single-exchange sweep-to-fill orders.
Block: Orders marked BLOCK orders are large, privately negotiated orders that
are executed outside of the public auction markets. Block trades were
specifically designed for institutions and traders with major financial backing!

OS FLOW
OS Flow is our web-based platform that streams Options Flow market data every
day. To access, you need to purchase the OS Flow + OS Algo monthly
subscription.

*If you are currently a member go to www.optionsswing.com, sign in and

purchase from your account dashboard for a discounted subscription.

1
www.optionsswing.com

Step 1: Step 2: Step 3:

2
Add-On Products
Are you sure you want to add OS Flow? Successfully Added Plan
Card Used: AMEX ****1234

OS Flow
Cancel Add OK
Purchase Add-On

IMPORTANT:
3 Make sure to read the entire contract carefully!
Use your legal name, address, and hit Submit

3 OPTIONS FLOW
OptionsSwing How-To Series
Orders Data

After you successfully purchase and submit the

ATTACHMENT B-1 contract, you will be redirected
to your account dashboard. You should now see a
new "OS FLOW" tab.

Ticker: A stock symbol is a unique series

of letters assigned to a security for
trading purposes.
Strike: The price at which a derivative
contract is bought, sold or exercised
Expiry: When the contracts are set to
expire
C/P: If the contract is a call or a put.
Underlying Price/Spot: The price of the underlying security/option trade at
the time the trade was placed
Details: The first number is the # of contracts purchased and the second is the
price at which it was purchased
Type: Will state either Sweep, Split, or Block
Premium: Total amount paid

4 OPTIONS FLOW
OptionsSwing How-To Series
 Identifying Plays

How to Identify Plays Based on Flow Channel Data

From this point forward, a lot of our inferences on possible trade opportunities
will be based on speculation and intuition. There is no exact formula in
identifying what any single purchase picked up by our scanner means but there
are certain factors we can look at to make educated guesses:

1) Orders that equate to $100K+ in total premium

2) Contracts expiring the same week or the week after
3) Strikes that are way OTM, no ITM or close to being ITM
4) Try to skip the major ETFs like SPY, VIX, IWM, and QQQ

Lets go over some examples of what we look for and what we would ignore:

Example 1: NOW Calls - Bullish Opportunity

This order came in on 5/1/20, giving it only

two weeks until contract expiration. By
looking at the Spot price, we can see that
NOW was trading at $341.19 at the time of
purchase and by contrasting that to the far
OTM Strike price of $370, we can conclude
that someone is making a ~$132K bullish
bet that the stock will move ~$29 in the
next two weeks.

Example 2: WDAY Calls - Bullish Opportunity

This order came in on 5/7/20, giving it

about one week until contract expiration.
By looking at the Spot price, we can see
that WDAY was trading at $156.84 at the
time of purchase and by contrasting that to
the far OTM Strike price of $165, we can
also conclude that someone is making a
bullish bet that the stock will move ~$10 in
the next week. We net 40%+ returns after
identifying this play and buying Calls.

5 OPTIONS FLOW
OptionsSwing How-To Series