Rapid Unusual Options Activity is one of the most powerful indicators of aggressive institutional sentiment in a trade opportunity.
The term rapid is used to signal multiple unusual options orders on the same exact options contract. These trending contracts tell us that institutional interest in the contract is more than just a directional bet. They’re getting greedy, taking up as much liquidity in the options contract as possible.
Rapid Unusual Options Activity is generally a strong short term sentiment indicator. Most Rapid Unusual Options Activity comes in within an hour of market open on a stock that is overwhelmingly bearish or bullish heading into market open.
Following Rapid Flow is great for day traders or short term swing traders looking to confirm institutions are in on the same setups as they are, or even just to discovery a new trade opportunity.
The most common rapid flow opportunities present themselves when a company has a big news break during after-hours / pre-market that significantly alters the market’s view of that company’s value. Another common rapid flow opportunity is the potential break of a key technical price level.
On 4/4/22 Elon Musk was revealed to be making an offer to purchase Twitter.
Institutions immediately stepped in at market open, sending a total of 34 orders for $2.02M on the weekly $50 calls. By the end of the day, these contracts were up over 50%.
On 3/18/22 $TSLA broke through a key level of resistance at $890 shortly after reclaiming the 200 day SMA, a level buyers had recently been hesitant of.
The $890 level officially broke at 10:00AM. Institutional buyers swept in with confidence to validate the bullish technical analysis.
Institutions started preparing for the $890 level breakout 5 minutes prior to the official break. This time around, the institutions stepped in with both weekly and next week expiration call option contracts. This is a sign that institutions view this as potentially being either a short term swing opportunity, or a day trade that could benefit from holding for a couple hours before taking profit. By taking next week expiration, holding through the day will result in much less Theta Decay than a weekly contract would.
Our original analysis that institutions believe in a short term swing opportunity holds true, as $TSLA spikes another $35 in the first hour of the next trading session.
We also detect continued buying, this time in $TSLA weekly $950 calls. When a stock has multiple days of Rapid Unusual Options Activity, we get the message that institutional traders believe in a multi day trend in the direction of the flow sentiment.
Just like how multiple Unusual Options Orders conveys more confidence than a single order, multiple days of Unusual Options Activity conveys more confidence in a trend with follow through potential than a single day does.
Rapid flow is a great tool for tracking broad market sentiment in the indices as well. In particular, Rapid flow detected from 3pm to 4:30pm tends to indicate sentiment in how futures will move overnight and into the next trading session.
On 4/25/22 we detected significant rapid unusual options activity in $IWM right after market close. It appears a big player had confidence in a multi-day sell off, going $9 OTM on contracts expiring in 3 1/2 weeks. The 3 large 5/20/22 $185 put orders detected after hours accounted for nearly half of the total volume on that particular $IWM contract for the entire trading day.
As an added layer of confirmation, we detected an institution building a short position in $IWM shares on the darkpool market early in the day.
The next trading session saw $IWM drop $4 from our Rapid Flow entry 45 minutes into open, good for 60% profit from the $3.10 entry.
4 days later $IWM was down $10 from entry, bringing the profit up to 107% from the rapid flow entry price.
Be sure to never use Rapid Flow as a 100% accurate signal on it’s own. Rapid flow is best used when added to a combination of one or more other indicator such as technical analysis, historical data research, darkpool data, and news catalysts.
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