How to read high volume on a specific option strike? [Newbie] - MarketTicker Forums


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Freewind Posts: 71 Incept: 2007-11-28 No safe place	Hi, There are times I see on a specific strike very high volume compare to all the other strikes on the chain, and I'm trying to understand what can it mean. Of course options are a zero sum game and for each buying there is a seller. It will be interesting to know your thought and experience on the subject. TX! ---------- If you can't do the time don't do the crime! 2012-05-25 04:43:42 Permalink
Lamarth Posts: 1225 Incept: 2008-03-15 Sydney	Large volumes in out of the money strikes, especially massively out of the money strikes can mean insider trades. More frequently, however, large volumes in a specific strike tend to be the result of broker trades - i.e. someone says "give me a market on XYZ" and hits up a market maker. Usually the bigger ones are spreads of some description (between strikes, expiries or even between related stocks), but otherwise they may be attempting to protect the risk on a large stock position or speculating due to a trading strategy. Positions of such size trouble the risk desks of both sides - the market maker will try to hedge the risk throughout the market in any way it can find, the market taker hopefully has a plan for the risk taken on. ---------- The Government Inequality: Total Wealth before Government Intervention > Total Wealth after Government Intervention “Those who have faith and confidence in the country and its ability to come back will profit by their foresight. This has also been the case over the past half century.” - WSJ 3rd Sept 1930 2012-05-29 09:40:07 Permalink
Patmcgroin Posts: 8223 Incept: 2007-09-12 Chicago	oi a bigger deal than volume. Especially in a gamma option. ---------- "I know a few arcane, obscure financial acronyms that the general public doesn't know and that's about it." 2012-05-29 22:28:05 Permalink
Lamarth Posts: 1225 Incept: 2008-03-15 Sydney	Thanks Pat - I think I'll translate "Patspeak" to newbie because I have a few minutes: oi = open interest gamma option = an option that has more gamma value (2nd derivative of price change) than it does vega or delta, as compared with the other strikes. So gamma is out of the money, vega is at the money and delta is in the money. Feel free to correct me if I'm wrong. ---------- The Government Inequality: Total Wealth before Government Intervention > Total Wealth after Government Intervention “Those who have faith and confidence in the country and its ability to come back will profit by their foresight. This has also been the case over the past half century.” - WSJ 3rd Sept 1930 2012-06-05 09:07:18 Permalink
Patmcgroin Posts: 8223 Incept: 2007-09-12 Chicago	Yeah- you got it. Large OI in gamma options (near the money options with small term) create a magnetic-effect around the strikes. Short gammas need to buy the underlying as it rallies to strike, and sell as it breaks to strike. As you cross strike (50-delta/highest gamma) the effect will decrease will the falling gamma (more slowly-increasing delta). ---------- "I know a few arcane, obscure financial acronyms that the general public doesn't know and that's about it." 2012-06-06 15:55:14 Permalink
Britishsteel Posts: 3585 Incept: 2007-12-07 New york Online	pat said : As you cross strike (50-delta/highest gamma) the effect will decrease will the falling gamma (more slowly-increasing delta).If volatility increases so does delta ---------- One Ring to rule them all,One Ring to find them, One Ring to bring them all,and in the darkness bind them. 2012-06-24 19:52:22 Permalink