Does Option chain pricing, open interest and others can hint about direction of market ?

T

TradeTune

Does option option trading can get you insight into short-term direction of market or it tells whether market is bull/ bear or if certain stock should be shorted in short-term, by looking at option chains, open interest and other attributes? Thank you
 
Daily charts..when you know what to look for.

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TradeTune said:
Does option option trading can get you insight into short-term direction of market or it tells whether market is bull/ bear or if certain stock should be shorted in short-term, by looking at option chains, open interest and other attributes? Thank you
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I don't think so. There are option strategies that involve simultaneously buying/selling calls and puts.

  • Straddle / strangle
  • Credit and debit spreads
  • Covered call
The above positions don't give any insight into the direction of the market when looking at the open interest.
 
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What you are looking for, is to view the PUT/CALL ratios. Or CALL/PUT ratios.

At one time, odd-lots was another thing a lot of traders used to swear by, but it's fallen slightly out of fashion. The theory is, only dumb-retail will go for odd-lots, and statistically, they lose out to the smart-money in the long run.
 
For people with insider information, they may buy a lot of OTM calls or puts.

But you still have to guess as too often insiders also lost money.
 
I look at open interest relative to key points on the underlying chart - I take a little bit of notice of supposed support and resistance, prices tell me more about concensus. Good luck (luck is inestimable as a skill!)
 
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TradeTune said:
Does option option trading can get you insight into short-term direction of market or it tells whether market is bull/ bear or if certain stock should be shorted in short-term, by looking at option chains, open interest and other attributes? Thank you
More...

A high implied volatility (IV) tells you that the market is expecting a big move either side. For instance you see high IV before earnings.
 
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