Options volumes: Insight into Professionals minds?

[trendie]

There are the little, half-educated retail traders.
Then there are the professional traders.

Can the volume of trades at any specific strike price indicate the viewpoint of the professional minds?
There always seems to be a specific strike price that has disproportionately higher volume than other prices.

Can this be used to indicate potential Support and Resistance for any given stock?
That is, given options are leveraged, there must be a price where some large traders start to sweat, and may be inclined to defend a price?
For example, Facebook, currently at 214, seems to have a lot of interest at 200 / 205.

 

[ChrisDouthit]

There are the little, half-educated retail traders.
Then there are the professional traders.

Can the volume of trades at any specific strike price indicate the viewpoint of the professional minds?
There always seems to be a specific strike price that has disproportionately higher volume than other prices.

Can this be used to indicate potential Support and Resistance for any given stock?
That is, given options are leveraged, there must be a price where some large traders start to sweat, and may be inclined to defend a price?
For example, Facebook, currently at 214, seems to have a lot of interest at 200 / 205.

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Options near the strike price is always going to get the most action, the stock is trading 200 you’ll see a lot of action on the 200 strike price, if the stock trades up to 210, the outstanding options on the 200 line will still be there, but now everyone will be trading the 210s.

In addition, you don’t really know the strategy of the trader that traded any options, they could really be doing anything, they could be bull, bears, or hoping for a level price.

For institutional investors, calls and puts are really the same thing. For example when you buy a put and buy stock on a one-to-one ratio this is synthetically the same thing as a long call. When you buy a call and sell stock this is synthetically the same thing as a long put, so you really have no idea what the trader is really trying to accomplish just by looking at the volume.

 

[trendie]

thanks for your insights.

 

[ChrisDouthit]

thanks for your insights.

Your welcome. One other thought, on expiration Friday if the stock is very close to a strike with a lot of long contracts, calls or puts, the stock price will likely get pushed to that strike. This is because whatever the stock price goes over the strike price everyone with long contracts sells the stock pushing it back down, and when it falls under the strike price everyone buys a stock pushing it back up.

 

[empi]

i am interested in this topic too. i think a very important point is the date and pricelevel of the underlying the openinterest is created. Is there something like times&sales for options ??

 

[Stewart4re]

Chris, I saw your responses regarding volumes and have a question of my own. We have the ability to trade up to 1,500 contracts on some equities and several hundred contracts on SPX. We are concerned about our ability to execute that number of contracts. I was told that trading over 300 contracts will start attracting attention (don't know who) and 1,000+ will set off red flags. Is this true?