When less is more
- Unusual options activity requires context to be useful
- Relative volume can be more significant than absolute volume
- Liquidations vs. new positions also an important factor
When is 680 more than 40,000?
To answer that question, take a look at Thursday morning’s LiveAction scan for unusual call volume:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Vail Resorts (MTN) is on top, even though its absolute call volume was lower—in some cases, dramatically lower—than that of any other stock on the list. For example, both Red Cat (RCAT) and Etsy (ETSY) had call volume in excess of 40,000 contracts. But as a percentage of average daily call volume, these totals represented less activity than that in MTN.
This is an important consideration for traders and investors looking for signs of shifting momentum and sentiment that aren’t apparent in a stock’s price. For example, two other stocks in the scan, Duolingo (DUOL) and Red Cat (RCAT), were up roughly 8% and 19%, respectively, at the time of the scan. It’s not surprising for stocks making big moves to have high options volume. By contrast, MTN was up around 1% for the day, which was the third-smallest percentage change of all individual stocks in the scan.1
Finally, let’s consider the “big” trade in MTN’s options—638 contracts in the slightly-out-of-the-money October $150 calls:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The fact that yesterday’s volume was nearly double the existing open interest (OI) means at least some of the activity could have represented new positions rather than liquidations—i.e., traders getting in rather than getting out. Meanwhile, the biggest trade in Kroger (KR) was the 8,900 contracts in the $68 calls expiring today. While that was a little higher than the OI of 8,600, it’s possible that some of this activity represented liquidations. Today’s OI totals will tell the tale.
In other words, MTN’s seemingly modest options activity may have been more interesting than some of the bigger totals that crossed the wire, since traders appeared to be establishing relatively large, new positions (in options with more than one day until expiration) in a stock that wasn’t making a significant move.
Market Mover Update: ETSY also appeared to be a case of traders getting into the market on Thursday—but on a very short-term basis. With the stock up roughly 4% to around $60 there was volume of more than 32,000 in the $64 calls expiring today vs. OI of just 175 contracts.
Today’s numbers include (all times ET): consumer sentiment (10 a.m.).
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1 With a share price of $10 or higher.