Christmas Unusual Option Activity Report

As Christmas fast approaches and 2021 is almost a reality, option traders are doing last minute shopping. These “stocking stuffers’ are plays that are looking for a positive move by New Year’s Eve. While it’s impossible to know which publicly traded companies are on Santa’s list, these large option trades are an indication that someone thinks that do.

Using Option Activity

You may be wondering how one can know what option traders are expecting to end 2020. It’s actually pretty easy. The great thing about unusual option activity is that it can provide a direction, target and a timeframe. Pretty cool, right?

The direction is established by whether calls or puts were traded and whether the option was bought or sold. For example, selling puts and buying calls is bullish, and selling calls and buying puts is bearish. Selling puts is a bullish indication, but it’s kind of like getting a pair of socks for Christmas. That activity isn’t super exciting. That means that long calls and puts provided the most bullish or bearish conviction.

A target can be attained when an out-of-the-money (OTM) option is traded. If an OTM call is bought, it is an indication that the expected move in the price is at or beyond the strike price. Therefore, the more OTM the bigger the expected move.

The timeframe is established by the option expiration selected in the trade. A shorter amount of time to expiration, like December 31, provides more urgency for a quick move than a January 2022 expiration.   

Today’s Option Activity

Every day there are many stocks that have unusual option activity. The term “unusual” is typically referencing above average option volume, a large block trade or a sweep of many smaller trades quickly combining into a larger position.

Sometimes, you’ll see this unusual activity but not significant. This happens because an option trade can be an opening trade or a closing trade. Of course, closing trades are of little interest unless it’s paired with an opening trade. This is called a “rolling order.”

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