6. Options and the volatility desk

Options flow (FLOW)

FLOW is a live tape of large option trades on the busiest US contracts (sweeps, blocks and big-premium prints) with ticker, contract, size, premium and implied volatility.

  • 4 min
  • 3 questions
  • Lesson 3 of 3

Why you would care

Who just paid a lot for options, and on what? "Someone bought 20,000 NVDA calls expiring Friday." Stories like this move retail sentiment and sometimes the stock. Reading flow well means knowing what each print type means, and what it cannot tell you (direction of the whole position, hedges, the other side).

The idea from scratch

Every option trade prints on the options tape (the OPRA feed, which merges all US options exchanges). Most prints are small. Flow scanners pick out the ones that look like big, urgent or informed money:

Sweep
One order split across several exchanges in a fraction of a second, taking every available price. Signals urgency
Block
One large print (here 100 contracts or more) at a single price, often negotiated
Split
One order filled in pieces at the same moment
Large premium
Total money paid (price x 100 x contracts) above a threshold

Premium is the dollar value of the trade: 2,000 contracts at 1.50 = 2,000 x 100 x 1.50 = 300,000 dollars.

What a print cannot tell you

  • Direction

    a call bought may be a bet on a rise, or a hedge for a short stock position, or one leg of a spread.

  • Opening or closing

    it may close an old position (compare with tomorrow's open interest).

  • Buyer or seller initiated

    a trade at the ask suggests a buyer in a hurry, at the bid a seller, in between unclear.

Diagram: OPRA: every option trade leads to Scanner: busiest contracts; Scanner: busiest contracts leads to Big or urgent?; Big or urgent? leads to Sweep (several exchanges at once); Big or urgent? leads to Block (100+ contracts one price); Big or urgent? leads to Large premium (premium above threshold); Sweep leads to FLOW tape; Block leads to FLOW tape; Large premium leads to FLOW tape; FLOW tape leads to Check: OI tomorrow, other legs, the stock.
Wide diagram: scroll sideways to see all of it.

See it in Gloom

open ittype FLOW. Enter opens a print.

What you see on each row:

  1. Time and ticker.
  2. Type: sweep, block, split or trade.
  3. Contract: call or put, strike, expiry.
  4. Size and price, and the total premium in dollars.
  5. Implied vol at the print.

Large prints also feed alerts: in ALRT, Events, an options-flow rule fires on a print above a premium you choose (default 1 million dollars), on one symbol or across your lists, optionally calls or puts only and sweeps or blocks only (see Alerts).

Practice and recap

Try it3 tasks
  1. 500 contracts at 4.20: premium? (500 x 100 x 4.20 = 210,000 dollars.)
  2. A sweep of puts at the ask on a stock you own: name two possible reasons. (A bet on a fall; a hedge by someone who owns the stock.)
  3. How would you check the next day whether a big call print opened a position? (Look at the strike's open interest in OPX: it should have risen.)
Common mistakes4 mistakes
  • Reading every big call print as bullish.
  • Ignoring the other legs of a spread printed at the same moment.
  • Chasing flow after the stock already moved.
  • Forgetting that the biggest players often trade off the tape or hedge in ways you cannot see.
Check yourself3 questions
  1. What makes a trade a sweep?
  2. How is premium computed?
  3. Name one thing a flow print cannot tell you.
Answers
  1. One order filled across several exchanges almost at once, taking available prices.
  2. Option price x 100 x number of contracts.
  3. Any one: the trader's direction or intent, whether it opens or closes, the other legs, hedges.
Words in this lesson5 words
options flow
The stream of notable option trades.
sweep
An order filled across several exchanges at once.
block
One large trade at a single price.
premium (of a trade)
Option price x 100 x contracts: the money paid.
opening / closing trade
A trade that creates / ends a position.

Educational material about reading market data, not investment advice.