Screening For Sizzle: Revealing Secrets of Options Volume

Tracking unusual flare-ups in options volume can uncover investing ideas.

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Tracking unusual flare-ups in options activity can offer potential stock ideas.

Following the options crowd—or at least seeing what they’re up to—can be a valuable peek into market expectations for a particular stock. Whether or not you’re deep into calls and puts in your own portfolio, simply tracking options volume can be an important indicator in your trading kit. Better yet, no VIP pass is necessary; do this people-watching right from a single feature on your trading platform.

Options volume is best viewed in the context of other indicators. For instance, a jump in volume that coincides with a big up or down price move may be an indication of strength in the direction of the change. It’s fitting then that large percentage price increases accompanied by thin trading volume are less likely to indicate market direction with any staying power. In fact, they may indicate that a reversal is taking shape. When tracking options volume, you’ll want to discern whether the crowd is taking action—buying or selling—in calls (call owners have the right but not the obligation to buy the underlying stock at a set price and time) or puts (put owners have the right but not the obligation to sell).

So, how best to get a little volume temperature reading without sticking your hand in the flame? Try TD Ameritrade’s thinkorswim platform’s Sizzle Index. It’s an indicator for screening stocks posting unusual options volume compared to their recent draw. It’s an opportunity to follow the money in a given stock, trolling for potential trading ideas. And since it’s impossible to keep tabs on all stocks all of the time, the Sizzle Index “quick scan” does your heavy lifting, returning unusually high values. Use it to quickly get a condensed round-up of, in this case, the unusual suspects you may want to keep an eye on.

It’s easy:

1. In the thinkorswim platform’s Scan tab (see Figure 1), click the Stock Hacker button and then, Sizzle Index. This quick scan button will scan all optionable securities with a per-share price above $5.00, volume above 100,000 shares, and market cap above $35MM for the most unusual options volume.

2. The results will give you the top ten most “sizzling” securities, measured by how many times their option volume is beating the volume of the past five days, in descending order. Click on the Sizzle Index column heading on the results for ascending order. Click once more for descending. There’s more information within your reach. For instance, compare call and put activity within the Sizzle stocks with the available put and call Sizzle columns. You might also leverage Options Time and Sales on the Trade tab for greater detail.

3. Use Stock Hacker features to further refine your Sizzle list. For instance, say you’ll only bite at stocks trading under $20 a share. Click Add Fundamental Filter and under Criteria, select Last. Under Max, select $20. Hit the Scan button.

4. Increase your results. Click the drop down next to the Show button and increase the number of stocks you’d like on your Sizzle Index.

5. Save your Sizzle either as a static or dynamic Watch List. A static watch list takes a snapshot of the securities that currently meet your scan criteria and saves them. Just click Save As for static watch list and give it a name. A dynamic watch list will periodically refresh, running your scan criteria against the current market activity and updating the list with the new securities that meet those criteria. To save this type of watch list, click Save Scan Query at the top of the Stock Hacker.

TD Ameritrade thinkorswim platform’s Sizzle Index

FIGURE 1: TD Ameritrade thinkorswim platform’s Sizzle Index, under the Scan tab. For illustrative purposes only. Past performance does not guarantee future results.  

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The Sizzle Index is the ratio of an underlying’s volume/implied volatility for the current day against the simple average of the prior five days.

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Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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