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Unusual Options Activity Slides
Unusual Options Activity Slides
Unusual Options Activity Slides
Presented by
Andrew Keene
We watch a scanner called TradeAlert and OptionHacker. This software tracks over
1,200 trades daily across all equity options exhanges. OptionHacker gives the best
potential Bullish and Bearish Signals Daily.
These block orders are executed by the biggest Institutions, hedge funds, banks and
traders in the market.
Why Trade Unusual Options Activity?
These trades that hit the tape are public orders and the information can be used to
trade. Why does a retail trader care about these orders?
On the next few slides we will focus on Spreads but some other types of orders are:
• Ex-Dividend Plays
• Buy-writes
• Sweeps
• Opening Positions
• Cancelled Trades
Ex-Div Trades are NOT UOA.
Ex-Dividend Trade: Remember that call buyers do not receive the dividend, while
owners of stock do receive the dividend payment.
Market makers will run a strategy know as a dividend capture play where they
inflate volume in order to take advantage of less sophisticated traders. This causes
blocks of deep ITM calls to hit the tape in SIZE
Example:
A trader sells 1,000 XYZ Jan 100 calls for $2.00, labeled as a buy-write.
This is something that complicates the process of reading UOA. We can never
determine a traders underlying stock position and when an order is labeled buy-
write we know it may not be speculation.
Sweeps: This is an aggressive order. These orders are routed to different exchanges
to buy or sell as many contracts as possible.
Sweeps allow for a trader to fill large orders at once without having to clear smaller
bids or offers first.
I LOVE the Word: “Sweep”
This order hit OptionHacker yesterday. We can see that the order was filled on
multiple exchanges.
This shows it was a more aggressive buy as the trader also paid the market makers
offer rather than working an order in bewtween.
Check out how the stock moved in that session and over the next day…
Stock rallied throughout the rest of
the session and these calls traded
as high as $0.34 in that session
good for a 70% profit in the same
day!
• Brokers can be lazy or forget to do this but there is a way to tell if a position is
opening or not that we will talk about.
Opening Positions are Great Trades
I have created a new trading plan that is going to help me trade better with better
entries and exits:
• As part of this plan I have concrete steps for both day and swing trades
• The plan has concrete rules for managing trades on both intraday and longer time
frames
This Plan Has Been Working!!
I opened a new account with $120,000 to trade this plan and am already up $11,000 in
3 weeks trading this plan!
The Secret to Making Money with
My New Day and Swing Trading Plan
UOA Signals Both Day Trade and Swing Trade Setups
Usain Bolt is the GREATEST Short distance runner of all time but probably wouldn’t win
a marathon.
Day trade setups are different than swing trades. We want trades that setup better for
a “sprint”
So for day trades we will look for UOA with less than 4 weeks left until expiry.
Considerations for Day Trades
Day Trades are meant to be open and closed in the same trading day. I will NOT hold a
day trade setup overnight.
Expert traders don’t use stop losses because they can choose to add to a position.
With all trades I will place my stops and profit targets right after I get filled.
Day Trade Profit Targets
Day Trades are going to have tighter profit targets than swing trades.
For example if I buy an option for $1.00 my stop/profit structure would look like this:
Entry Price $1.00
Stop Loss $0.80
Profit Target #1: $1.10
Profit Target #2: $1.20
Profit Target #3: $1.30
Profit Target #4: $1.40
Profit Target #5: $1.50
Day Trade Setup Examples
This is an example of a day trade setup. These are front month options with a short
time until expiration. I would structure my setup like this:
A marathon runner like him prepares and plans for a race much differently than a
splinter would.
Just like these two runners the considerations for swing trades are much different than
they are for day trades.
Swing trades will have a much longer expiry so the management of the trade through
stop losses and profit targets will have to change as well.
Stop Losses in Swing Trades
Since swing trades have a longer time until expiry a position can experience much
more movement between trade entry and expiration.
This means that these trades need to be given a bit more room.
Beginner trader – 30% stop loss
Intermediate trader – 50% stop loss
Expert traders – No stop loss
Again a trader who is an expert may choose to add to a position. Adding to positions is
more acceptable when swing trading than day trading.
Swing Trade Profit Targets
Swing trades require wider profit targets due to the longer time until expiry.
For example if I buy an option for $1.00 my stop/profit structure would look like this:
Entry Price $1.00
Stop Loss $0.70
Profit Target #1: $1.20
Profit Target #2: $1.40
Profit Target #3: $1.60
Profit Target #4: $1.80
Profit Target #5: $2.00
Adding to Positions In Swing Trades
With more time to expiry in swing trades a trader may choose to add to their position
on a pullback if they are an expert
If a UOA swing trade starts to move against me I can add to the position 35% and 65%
lower from my entry price.
Example: I buy the UPS May 100 Puts for $1.77 and then take a profit target at $2.00 I
will look to add to the position at $1.10 and $0.50
When I see a trade come across the tape the first question I ask myself is…
Easy questions, If I have traded a stock on UOA in the past and made money in it, I will
trade it again.
Examples of stocks I don’t trade:
STX, XRT, XLU
Examples of stocks I do trade:
HAL, HES, BHP
UOA Examples
Opening or
Closing Position
Exchange & Bid Ask
@ the time
Where stock was trading when the option
Bought or Sold trade happened
*Red Sold Green Bought
Trader buys HES Apr 50
Puts for $1.15
As the Stock sold off these puts traded as
high as $1.70 in this session and have
traded as high as $2.55 since the initial
trade!
Swing Trade Setup Examples
This is another example of a swing trade setup. There is more than 6 weeks until
expiry so if I were to take this trade my setup would look like this:
The structure for day trades will be different and I will take profits much sooner
Swing Trade Setup Examples
This is an example of a swing trade setup. There is more than 6 weeks until expiry so if
I were to take this trade my setup would look like this:
This is an example of a day trade setup. These are front month options with a short
time until expiration. I would structure my setup like this:
Some considerations apply to both day and swing trades. These are things that a
trader has to think about regardless of the expiration of the option.
1. The bid-ask spread: I will not trade an option market on the offer that is wider than
$0.10. This forces me to give up too much edge to the market maker.
2. Technical Analysis: Chart reading is important for trading UOA but I have to keep in
mind which charts are actually relevant.
1. Day Trades – The daily bar DOES NOT matter. I will use the 5 and 15 min bar for all of my analysis.
Remember these are short term trades!
2. Swing Trades – The short time frame charts do not matter. The only thing I should be looking at is the
daily chart. These are longer term trades and longer term underlying trend is what's important.
The Unsusal Options Activity Trading Plan
Those are some great trades, but how did I know how to get in them?
I follow a trading plan. This is a plan that I have developed over a 12 year long
career as an equity options trader. I call it the OCRRBTT Trading Plan
The main indicator I use is the Ichimoku Cloud, it a simple to use forward
looking technical indicator. I have a simple set of rules for beginner traders to
use.
Risk: I can actually calculate risk two different ways. Risk is one of the
most important concepts in any type of trading plan.
Confidence Scale: Notice that no single position can ever blow out my
account.
Every trade and every trader is different but generally I have targets
based on option expiration.
B: Breakeven
Time: Most traders lose money because they don’t give trades
enough time.
There are some other things a trader should consider when trading UOA. These points
are based on the experience I have had trading options.
Stocks that Gap: Often times after a stock gaps higher a trader will sell their long stock
position and buy calls. This is actually less bullish that it may seem. The trader is
actually REDUCING their overall exposure to the name.
Chasing trades: I have often lost money chasing trades that there was no need to
chase. Remember how we talked about the number of trades that hit the tape in a
day? There will always be another one.
When Should a Trader Day/Swing Trade?
- Day Trade: There are certain signals that we believe create a better
opportunity to take as a day trade and profits within hours if not minutes.
- Swing Trade: There are certain signals that we believe create a better
opportunity to take as a swing trade that profits over weeks if not days.
When to Day Trade Equity Options
• Only with weekly or front month options that trade in pennies. (Options
market is $.87-$.90)
• The goal is to make money in hours and not hold these positions overnight.
• Take advantage of these SIGNALS and can try and “scalp” them.
• It is very hard to day trading options that are nickel wide. (Options market is
$.85-$.95)
The Rules I Follow When Trading
We are about to discuss a set of rules that I can apply to my trading plan. The
rules for day trading and swing trading are different.
Rule #1 Day Trading Options
Rule #1: Only implement this plan in options that trade in pennies.
• Trader should have 4 targets.
• Trader’s Stop will be 20% lower. If a trader pays $1.00, the stop is $0.80, if a
trader pays $3.00 the stop will be at $2.40.
• If trader’s stop on a $1.00 option is $0.20 lower their targets should be 10%
profits, 20% profits, 30% profits and 50% profits. After target #2 is hit less
aggressive trader can move their stop to breakeven.
• The less stock that trades in a day the more risk/reward there is.
Rule #2 Day Trading Options
• A trader must also keep an eye on the 5 minute chart, if the stock breaks the
cloud in the opposite direction or see “rounding tops” a trader may exit early.
Swing Trading Options Rules
• Charts are much more important to a trader when they are swing trading.
• Again a trader should always have an eye on the chart looking for rounding
tops.
• Any break of the cloud in the wrong direction on the daily can be used as a
signal to exit.
• A trader can add to a position 35% lower if they are an intermediate trader.
Special Bonus Section!
Understanding Time Decay
Understanding Time Decay is Important for ALL Options Traders!
Time Decay
We now know that as part of my plan I am only day trading front month options
however the back month at some point may become the front month:
Once this swing trade has less than 4 weeks to expiry it falls into my day trade time
frame and I need to exit the position.
I do not want to hold bad positions and expose myself to more time decay.
Trader bought puts early in the morning
and the stock rallied into the close. I
could exit this position
Exiting Bad Positions
Once there is only 1 week left I MUST exit the “back month” bad positions I have on,
“WLD”:
“WLD” Stands for win, lose or draw because no matter what I MUST exit these losing
positions.
There are times when a trader can get the most out of an option:
• I can get ahead of time decay some by selling the options the Thursday one week
before expiration.
• Options decay fastest in the afternoon and on Monday’s and Friday’s as market
makers roll out their models.
Example: A trader buys a large block of puts and I follow him, shortly after the stock
spikes on a 5 min bar. I would get out of the trade!
Trader bought puts early in the morning
and the stock rallied into the close. I
could exit this position
Managing Exits with Charts
• If I see a stock moving lower as calls are being bought I can exit the trade.
• I can give it some room, maybe 0.5-1% of the stock price
• After it moves that much the trade is more likely to be a hedge and I will get out
• The odds of it coming back my way are low
The same thing applies to swing trades with some other considerations…
Managing Exits with the Daily Chart
• Traders can be buying options on a longer time frame for hedges against stock
positions.
• I can use similar rules for exiting but remember swing trading is a war not a battle,
it could take longer for a trade to play out.
• However if it moves to far away the trade is more likely to be a hedge and I should
exit.
Be the Best You Can Be
• Unusual Options Activity HAS worked and will work in the future!
• Some trades need to be managed as swing trades and some need to be managed
as day trades PERIOD!
• DO NOT be stubborn when trading UOA, have a plan and stick to it!
• Understand the differences in time decay, gamma, and chart analysis in day
trades and swing trades.
• NO trader is smarter than the market, the market can remain irrational longer
than I can remain solvent.
YOU ARE A MASTER NOW!!
This course is a $999 value but I try to deliver 10x that value to you!
• You have mastered what has taken me over 12 years to learn with UOA!
• I have given you a Concrete Trading Plan that ANY trader can trade with, Beginner,
Intermediate and Expert.
• I have proven with REAL money that this works, because I am up over $8,000 in
three with the stock market up and I am SHORT only
Hope you enjoyed, learned, and most of ALL please email me with ANY questions:
andrew@alphashark.com