Screening For Sizzle: Understanding Unusual Options Activity

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.

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5 min read

Key Takeaways

  • Tracking options activity can offer a peek into market expectations for a particular stock
  • Learn how the Sizzle Index can help traders find, filter, refine and monitor stocks experiencing unusual options activity

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; you can do this kind of people-watching right from a single feature on the thinkorswim® trading platform.

When Options Volume Sizzles

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 call options (call owners have the right but not the obligation to buy the underlying stock at a set price and time) or put options (put owners have the right but not the obligation to sell). It's also important to be able to track down unusual option volume when it occurs, because it could hint at where the underlying stock might go.

So, how best to get a little volume temperature reading without sticking your hand in the flame? Try the Sizzle Index on the thinkorswim platform from TD Ameritrade. It’s an indicator for screening stocks posting unusual options volume compared to their recent draw. And if you're the type who likes to know the math behind the indicator, the Sizzle Index is a ratio of a security’s current options volume over that security’s average options volume. So if you see a stock with a Sizzle Index of 5.00, that indicates its current daily options volume is 5-times that of its daily average options volume. A Sizzle Index of 0.50 indicates current volume half that of its average, and so on.

Think of it as an unusual options activity scanner that allows you 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.

Setup, Refine, Watch Your Sizzle

Using the Sizzle Index as a unusual options activity scanner is easy (see figure 1).

FIGURE 1: FIND YOUR SIZZLE. Find, refine, and keep an eye on your sizzle. Image source: The thinkorswim platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

1. Scan all optionable stocks. In the thinkorswim platform’s Scan tab, click the flame at the top right that represents the Sizzle Index. Next, click the Stock Hacker button and then, because you only want to search for stocks with options, click the Scan-in button and choose the category "All Optionable Stocks." This will allow you to scan all optionable securities with a per-share price above $5, volume above 100,000 shares, and market cap above $35MM for the most unusual options volume. 

2. Compare with other metrics. The results will give you the top 10 most “sizzling” securities, measured by how many times their option volume is beating the volume of the past five days, in descending order. 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. To do this, go into the "Sorted by" tab, choose "Optionable Underlying Metrics," and then choose 'Put Sizzle Index' or "Call Sizzle Index." Then click Scan again for a new list. You might also leverage "Options Time and Sales" on the Trade tab for greater detail.

3. Refine your sizzle. Use 'Stock Hacker' under the Scan tab 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. This can be done either as a static or dynamic watchlist. A static watchlist takes a snapshot of the securities that currently meet your scan criteria and saves them. Go all the way to the right side of the screen on the "Search Results" ribbon and click "Save As" to create a static watchlist and give it a name. A dynamic watchlist will periodically refresh, running your scan criteria against the current market activity and updating the list with the new securities that meet those criteria. Click it to either save as a watchlist or set an alert as the sizzle changes.

One final note on the Sizzle Index: It doesn't need to be scanned in order to be seen. You can add the Sizzle Index as a column to any watchlist in the thinkorswim platform to gauge the level of activity in a security's options. You can also view it under “Today’s Options Statistics” on the "All Products" tab if you want to view it while looking at a specific options chain. Each of these locations offer call- and put-specific Sizzle Indexes if you want to view options activity for just one side of the chain. These are two more ways to help you see what's cooking.

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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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