Riot Blockchain (NASDAQ: RIOT) the shares experienced unusual options activity on Friday. The stock price rose to $ 26.79 after the option alert.
- Feeling: BEARISH
- Option type: TRADE
- Trading type: CALL
- Expiration date: 6/18/2021
- Exercise price: $ 35.00
- Volume: 886
- Open interest: 1576
Three ways of ‘unusual’ activity options
The extraordinarily large volume (compared to historical averages) is an indication of unusual activity in the options market. The volume refers to the total number of contracts traded during a given period of time when discussing options market activity. 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.
Out of the money contracts are uncommon because they are purchased at an exercise price that is very far from the price of the underlying asset. “Out of the money” occurs when the underlying price is below the strike price on a call option or above the strike price on a put option. Buyers and sellers try to take advantage of a large profit margin in these cases because they expect the value of the underlying asset to change dramatically in the future.
Understanding the feeling
Options are “optimistic” when a call is bought / close to the put price or a put option is sold / close to the buy price. Options are “pessimistic” when a call option is sold at the next / short call price or a put option at the next short price.
Although the activity is suggestive of these strategies, these observations are made without knowing the investor’s true intentions 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 strategies to trade options
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 an 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