I was watching the Yahoo option dragon, which can tell you which options have the most volume, on thursday and noticed that although the market was moving up the vast majority of volume was on the side of qqqq puts. And of cource we know what happened friday. Is this a reliable indicator?
spreadrisk
Junior member
- Messages
- 37
- Likes
- 1
Option Volume can not tell you if more options are bought than sold.
Selling to Open Puts can be highly bullish.
High volume near to expiry can be explained by traders rolling options into the next month, rolling up, or rolling down a strike.
Agreed that unusually high Volume is telling you something, what that is may still be known to a few.
Selling to Open Puts can be highly bullish.
High volume near to expiry can be explained by traders rolling options into the next month, rolling up, or rolling down a strike.
Agreed that unusually high Volume is telling you something, what that is may still be known to a few.
spreadrisk
Junior member
- Messages
- 37
- Likes
- 1
n6394p
"why was most of the volume on puts and not calls?"
We will never know!
Your first thought may have been correct, they were bought in expectation of a fall in the QQQ, but you don't know if the high volume was part of another instruments high volume. By that I mean you are not seeing the whole picture.
You can sometimes see VERY HIGH volume in the S&P500 Puts (SPX) and also the Futures, this is probably buying Puts to protect the bought Futures.
If you are bullish on QQQ then it can be better to sell Puts rather than buy Calls, because if you are wrong you can still profit from the time decay working in your advantage.
USA Option exchanges have to trade a certain quantity of options at the curent Bid or Ask, so for every buyer there has to be a seller. Of course the person on the other side of your trade could be a Market Maker (who will hedge away his risk).
Keep looking for the Volume Spikes
"why was most of the volume on puts and not calls?"
We will never know!
Your first thought may have been correct, they were bought in expectation of a fall in the QQQ, but you don't know if the high volume was part of another instruments high volume. By that I mean you are not seeing the whole picture.
You can sometimes see VERY HIGH volume in the S&P500 Puts (SPX) and also the Futures, this is probably buying Puts to protect the bought Futures.
If you are bullish on QQQ then it can be better to sell Puts rather than buy Calls, because if you are wrong you can still profit from the time decay working in your advantage.
USA Option exchanges have to trade a certain quantity of options at the curent Bid or Ask, so for every buyer there has to be a seller. Of course the person on the other side of your trade could be a Market Maker (who will hedge away his risk).
Keep looking for the Volume Spikes
