Looking at option volume as indicator?

[Cuddles]

I know how to read charts using a few indicators but it occurred to me that one could look at call volume to gauge future price. Seems fundamental enough and am wondering if it's common practice and a good predictor?

 

[jonescd]

only paid attention to this recently but it would make sense for a tute to buy overlying stocks after placing calls

 

[HobbyTrading]

I know how to read charts using a few indicators but it occurred to me that one could look at call volume to gauge future price. Seems fundamental enough and am wondering if it's common practice and a good predictor?

I'm not sure whether the trading volume on call options alone is good enough to get an impression on the price trend of the underlying stock price. Ignoring the trade volume on put options might lead you to taking the wrong conclusion.

 

[Robert Morse]

I know how to read charts using a few indicators but it occurred to me that one could look at call volume to gauge future price. Seems fundamental enough and am wondering if it's common practice and a good predictor?

https://marketchameleon.com/Screeners/Options

 

[Cuddles]

I'm not sure whether the trading volume on call options alone is good enough to get an impression on the price trend of the underlying stock price. Ignoring the trade volume on put options might lead you to taking the wrong conclusion.

That's an excellent point

https://marketchameleon.com/Screeners/Options

What am I looking at Robert? Been using this one myself:
http://www.nasdaq.com/symbol/tsla/option-chain

 

[ET180]

That's an excellent point



What am I looking at Robert? Been using this one myself:
http://www.nasdaq.com/symbol/tsla/option-chain

I mentioned this recently in another forum. I suspect that measuring exposure via some indicator that considers traded underlying volume + derivative volume (perhaps open interest scaled by delta -- perhaps add scaled call open interest, subtract scaled put open interest) might be a good indicator of exposure to a given product. Exposure should / could / might be predictive of price.

 

[Llxa]

Well I am not too sure how the Option volume is calculated. Does it include both the buying AND the selling of the Call options trade volume? If that's the case, then you won't know how much of that volume is from people buying the Call which indicates a bullish sentiment for the stock and how much of that volume is from people selling the Call which represents a bearish sentiment for the stock. So I am not sure if this volume would be a good indicator of which direction the stock is going.

 

[viruscore1]

I know how to read charts using a few indicators but it occurred to me that one could look at call volume to gauge future price. Seems fundamental enough and am wondering if it's common practice and a good predictor?

Yes, it's common

 

[ET180]

Well I am not too sure how the Option volume is calculated. Does it include both the buying AND the selling of the Call options trade volume? If that's the case, then you won't know how much of that volume is from people buying the Call which indicates a bullish sentiment for the stock and how much of that volume is from people selling the Call which represents a bearish sentiment for the stock. So I am not sure if this volume would be a good indicator of which direction the stock is going.

It's called open interest.

 

[JackRab]

I would take at least IV change into consideration as well... that way you 'might' be able to identify large seller or buyer of options....
Just the volume doesn't say anything, since it can be a Vol play.

And, even a large buyer of OTM calls might prefer the stock to drop, when the options trade is actually a hedge for short selling...

So think about that.

That's one of the reasons I don't really look at put/call ratio's.