Watching an option tape

D

dcunited

Curious if any equity traders look to option
prints/movement as an indicator for short term equity
movement (ie within the next couple secs-minutes)? I
mean beyond keeping track of oi or being aware of the
nearest strike price near expiration. More like if you
were a scalper watching an equity tape would you ever
keep one eye on the option exchanges to see what
trades were going through?

Kind of a general question I know, and I'm going to
check it out myself going forward no matter what, just
would like to hear any thoughts on the matter.

Thanks
 
I'm pretty certain that options (both in size on the b/a and in price) will move slower and after the underlying simply because the options won't move because of every little wiggle, spread is a big reason for this. For example, on the Q's, a move of a few pennies won't change much on the options (ATM or whatever you're looking at) but if the move gets bigger you'll start seeing big shifts in size on the B/A and then new prices printing to the tape. Not too useful for trading the underlying though
 
the delta of an option tells you how fast it moves with the underlying

The deeper In the money, the higher the delta. once you are two strikes deep into the money, your option should effectively move 1:1 with the underlying as:

- as time to expiration shrinks
- as volatility drops

1. Buying an ITM option on an underlying offers far greater leverage than buying the underlying outright

2. You can apply sell stops on long positions or buy stops on short positions to manage risk.

3. Reward/Risk (margin) will beat buying outright because you have far less that you are risking than when buying the underlying...especially as you go further OTM

4. Slippage, the bid-ask spread, should be small so trade highly liquid options/stocks.....

for your example on QQQ, which have 10 cent slippage and have high liquidity

Code: 
                                             Today's        Hypthetical return 
position                 cost         Delta            if QQQ gain $3 now
-------------             --------    ---------           -----------------------
QQQ                       36.93       100                     3/36.93
QQQ Jun 33 Call           5.00        78                    2.67/5.00  
QQQ Jun 36 Call           2.95        61                    2.34/2.95

so position 3 offers the best R/R and u can always close out if it QQQ head south.......
 
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