Options Orderflow

M

masudhossain

I've recently stumbled across this topic of Options Orderflow as recommended by a professional trader (he's a millionaire).

It's where you can view the large entries being made for a particular stock (size, strike, expiration) in real time. I assume this method is used mainly to find large orders of buying/selling (Orders totaling millions) within a particular stock because it indicates that an institution or fund is making that trade. I guess it's a way of 'follow the big boys' trading?

One problem is that i cannot find very much info on this topic, which is odd seeing how it's a pretty simple concept to me. Do any of you have any information or experience in this? I would prefer to find a good platform or site that provides this information. As of now, i only know of one site (optionsflux.com), but that site seems very unprofessionally built.
 
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Option order flow is important to market makers. Most equity option orders from retail firms are directly to either a MM group or option dark pool. The firm that controls the order, get paid for routing the order this way. A great deal of orders are execute by "upstairs" trading desks at the larger firms or independent brokers. They get paid to find liquidity and price discovery.Those orders are often crossed on an exchange.

Unless you are part of this system, do don't get access to this order flow to trade against.
 
rmorse said:
Option order flow is important to market makers. Most equity option orders from retail firms are directly to either a MM group or option dark pool. The firm that controls the order, get paid for routing the order this way. A great deal of orders are execute by "upstairs" trading desks at the larger firms or independent brokers. They get paid to find liquidity and price discovery.Those orders are often crossed on an exchange.

Unless you are part of this system, do don't get access to this order flow to trade against.
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That's odd. Because this site has that information www.optionsflux.com as well as www.trade-alert.com
 
-There are now 11 option exchanges
-You will see trades after they occur
-if they repeat, you have little information as to where they will trade next
-Most of these order are crossed

I'm not sure how these website expect you can profit from a past trade. You don't even know who initiated the trade or if it was paired with stock as a hedge.You don't know how well informed the trader that initiated the trade was or what they were trying to accomplish. They could have a large short position in a stock and bought OTM calls as a hedge and you thing they are bullish. they can buy a large block of OTM puts to protect a large long position.

What do these website suggest you do with this information? Do the same as the large orders or fade them?
 
The value is that it can be a source of investigation. Often vols get distorted because of a large or a series of large orders push the vol. However, your hit ratios are small. You don't know the motivation of someone's trading. It could be a delta trade, a volatility trade, hedging an OTC product, or a speculative punt. A 10,000 lot to a retail trader is an ungodly size. To a multi-billion dollar hedgefund, it's less than a day's pnl in premium. I studied this a while ago, and I found little use out of it.

I spoke to the owner of trade-alerts at the time. He said their largest clients were sell-side banks who use the information to pitch to clients.
 
Options aren't my chosen niche however my understanding is that unusual volume compared to the av.daily can cause volatility distortions on a skew chart. The livevol platform allows you to scan for unusual volume and monitor the skew. You can then consider a vol spread to trade the skew chart.

superb options material is hard to come by. I have read cottle, baird & sinclair stuff - all enlightening. i would love to get into option market making but you need deep pockets c. $1m risk capital.

check this blog entry by livevol describing trading orderlow and skew chart.

http://livevol.blogspot.co.uk/2012/01/trading-option-skew.html

GL
 
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