NIO (NYSE: NIO) the shares had unusual options activity on Friday. The stock price fell to $ 41.62 after the option alert.
- Feeling: BULLISH
- Option type: SWEEP
- Type of trade: PUT
- Expiration date: 3/19/2021
- Exercise price: $ 42.00
- Volume: 11481
- Open interest: 8754
Three ways of activity options are ‘unusual’
The exceptionally large volume (compared to historical averages) is one of the reasons why activity in the options market can be considered unusual. The volume of options activity refers to the number of contracts traded during a given period of time. The number of unsettled contracts that have been traded but not yet closed is called open interest. These contracts have not yet been closed because a buyer has not purchased the contract or a seller has not sold it.
Another indicator of unusual options activity is the negotiation of a contract with an expiration date in the distant future. The additional time until a contract expires generally increases the potential to increase the time value and reach the strike price. It is important to consider the value of time because it represents the difference between the strike price and the value of the underlying asset.
Contracts with an exercise price that is far from the underlying price are also considered unusual because they are defined as “out of the money”. This occurs when the underlying price is below the strike price on a call option or above the strike price on a put option. These trades are made because the value of the underlying asset is expected to change dramatically in the future, and the buyer or seller can take advantage of a larger profit margin.
High and low feelings
Options are “optimistic” when a call option is bought / close to the put price or a put option is sold / close to the buy price. The options are “pessimistic” when a call option is sold at the buy price / close to the sale price or a put option is bought at the close sell price or the sell price.
Although the activity is suggestive of these strategies, these observations are made without knowing the true intentions of the investor when purchasing these options contracts. An observer cannot be sure whether the bettor is playing the contract immediately or protecting a large underlying position in a common stock. For the latter case, the exposure that a large investor has in his short position in common shares may be more significant than the activity of optimistic options.
Using these options strategies
Unusual options activity is an advantageous strategy that can greatly reward an investor if he is highly qualified, but for the less experienced trader, it should remain another tool for making a well-informed investment decision, taking into account other observations.
For more information to understand the alert options, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts