How to Read Unusual Options Flow: FlowAlgo, Cheddar Flow, Quant Data

how's it going everyone this is matt l with max options trading i am here covering a very very important topic um so i know a lot of you guys use the flow algos the cheddar flows the quants a lot of the flow tools but you don't really know what you're looking at when you're reading these float charts so i'm going to be breaking out in depth how you can actually read these real time option flows the equity blocks the dark pool prints and then how you can actually understand how these can help you make trades so i'm going to go over how to do this on flow algo and cheddar flow but obviously the flow is going to work a lot of the same in in many of your different flow tools so first things first um the on floor algo cherry flow they all have these bullish sentiment what they call put flow call flow these are not really that relevant to be honest so i wouldn't pay too much attention to that information the real meat of the product is going to be here which is the actual unusual options activity so we'll dive deep into the specifics of each of these so obviously you have your time your ticker these are all self-explanatory expiration so a lot of people ask me how do you determine if something is a hedge or not so the way i think of it is primarily options were meant they were created to be hedges as long-term portfolios right so um naturally stocks do go up they trend in the upward direction so when you think about hedging most way in the money puts are going to be your hedges so for example we'll start with just tesla so tesla 3 58 pm 9 17 21 244 days to expiration this is a 1700 strike call clearly this is not a a hedge by any means of a short position because this is way out of the money 3.1 million these are all self-explanatory but important to understand the type of transaction this is as well as these little dots here so the spot price is where you actually the trade took place sometimes these are delayed a little bit so this is where the actual trade took place because it's important if you have these contracts that expire i say like 122 115 the ones that are real close in expiration and the spot price is already behind then they could have already taken profit so be wary of the contracts that have the expirations um close out so one day two days three days or a week away those are those are my most likely your scout positions so if there's a large amount of money so your premium and a close expiration that's most likely a scout position and they have already gotten out of the trade before you can even think twice so next thing is very important is the type of transaction so i'm gonna go over here and walk through the different types of transactions sweeps splits and blocks so you look at flow algo these are the descriptions for the type sweeps are an urgent order that sweeps multiple exchanges this is the most powerful type of order type because it's basically saying they want this contract they want this order to go through so they're willing to fill it on multiple exchanges so that's the most aggressive form you have your split order which is a single exchange sweep border so it's still aggressive but it is on one single exchange so there's not as much urgency to get that out so you have sweep very aggressive split order medium aggressive and then option blocks so option blocks are going to be the things that are negotiated out of the typical fashion of trading so off exchange so if you see these blocks these are negotiated between two parties which for every option buyer there is an option seller so this block means that fxh was negotiated off of the normal exchanges for 175 000 in premium for 21. so obviously sorry for 2 19 21 so obviously someone is betting on a put side uh f f x h one thing i have noticed is that blocks are usually not hedges for the most part so blocks are if they're negotiated they take the time to be discreet about it they take the time to negotiate that they're usually not going to be hedges right so type of transaction is very important premium is very important but also the typical thing you don't think of strike is also important so you wonder a lot of people ask me is is this a buy or a sell right so you're trying to figure out if they're actually buying these calls or if they are selling these calls so that's it's very important um to understand that so the way i think about it is there is a buyer and a seller of every option contract you're not just buying it from no one so the 1700 calls on tesla for 9 17 21 there is someone who is buying 539 of these so these are the details at 56.88 a contract but there is also someone who is selling that so when you think about flow i have had a lot of success just thinking about buyers in all these circumstances because there is a buyer in all of these circumstances right and the the most part for the most part people who are institutional money is going to be buying a lot of these large contracts um but there is going to be a seller on the other side so think of it whenever you see these options contracts there's going to be some selling positions obviously there's going to be some credit spreads or whatever you want to call it but i if you think about it in terms of buys because every buyer has a seller every seller has a buyer then you'll do just fine another thing to understand the importance of is these little dots here so falago has them flow has them as well these little dots represent kind of the strength see this is where you guys see if you're in a discord you see golden sweet purple sweep whatever they are you can actually see this dot here is day volume is greater than the open interest so the open interest is actually the total number of contracts of this specific type so 1700 calls for 9 17 21 the open interest the date the volume of the contracts that were traded today was greater than the entire open interest this is a very aggressive move right next largest position of which is open interest so this is now the largest position of open interest which is also very aggressive and hence why this is highlighted because this is one of the most aggressive positions today so it's called a golden sweep so very important recap buyers and sellers there's always going to be a buyer of an options contract for strike if it is way in the money it's likely going to be a hedge position um that's just my experience that's what i've talked to several actual traders um and that's how they go by it and then also naturally you should understand that most bearish positions you need to have a bias you need to go ahead and think to yourself these are likely a hedge position next thing is understanding equity blocks and dark pool prints so essentially these are contra or these are sales that people want to be discreet so i'm going to go over spy specifically i'll just cover this one right here so this is a dark pool order the spot price this is where the actual order took place the reason why equity blocks and dark bull prints are important is because they are basically 24 hours delayed because they go through european trade desks so it's it's basically a way for institutional traders to hide their positions so spy the option the spot price of spy was 378.35 190 million dollars were spent there and 502 443 shares were sold now you might say how do you know if it was bought or sold right and it's basically a guess in the sense where if the spot price is lower then you can guess because it's red flow algo and shutter flow do it for you that this is bearish right because your spot price of you selling this it's going to drive price action down and if it's above it'll be green because it's bullish and it will change based off of where the price action on spy actually is that day so we'll go over here real quick here's the equity blocks um regular blocks that have no trade background the notion of value all this is kind of self-explanatory um sortable data yada yada yada but it's very important to understand that this information is delayed this is about 24 hours delayed for these big equity blocks so that's something to pay attention to and then obviously alpha ai this is just basically an algorithm that helps you determine where the long positions are over here on cheddar flow very very similar situation i do think they have better overall flow because you can see here after hours you can trade up 15 minutes after hours you see a lot of spy and qqq bear flow premiums are quite large and we'll see as you can see they're pretty aggressive as well so these are weeklies 122 122 129 122. so these are likely not going to be hedges because institutional investors who are trading hundreds of thousands of dollars millions of dollars hundreds of millions of dollars at a time they're not going to risk large positions with close-out expirations just as a hedge because they're playing the long game and their equity so why are they going to risk a million dollar hedge position on a week out contract it just doesn't make sense fundamentally right so when you look at this you see a bunch of spy contracts weeklies next week and you see these premiums are quite large the strikes also let's see the strikes 380 380 370 310 oh that's qqq so these are likely actual bearish positions they're not hedges by any means because this is a very aggressive expiration for a million dollar hedge or so and as you can see here you can see the spot type or the actual type of transaction split sweep block very important so this is how you can use that right cheddar flow file go has the exact same stuff as far as the actual flow i do think cheddar flow has some stronger capabilities because it gives you more flow but i'm going to go back to flo algo for one of the important reasons is you can actually see and sort historical flow out so for this example i just went back to october 9th the reason why i did this is because i'm looking at spy on the chart and i see there was some significant selling pressure here so i wanted to see what the unusual options activity for that week was obviously you can see here there was this is the uh this is the historical snapshot you can actually see the overall bullish flow overall bearish flow of that entire week iwm had 90 or 29 million dollars in put flow spy and tesla so we'll go to the spy orders and see what kind of transactions took place to see if we can help determine if these were aggressive or hedge positions so 122 122 21 122 21 122 21 115 21 so these look like long term put positions oh i apologize this is the wrong date so let me go back to 122. uh we'll just do that due this week for example so we'll go this is actually today or this week specifically so friday just ended you can actually see all of the bearish flow so these are pretty aggressive situations where they have a bunch of 122 flow 122 flow 122 flow so you can see all the the actual weeks 115 115 so these are all trades that have already taken place that already actually expired so i'm looking i'm interested in the flow 122 122. so this is actual expiration from today that's going to be next week and these are pretty aggressive put sweeps here so sweep sweep sweep sweep sweep the strike price is just out of the money 355. that's a very aggressive uh put but it's for farther away so it's just you've got to understand that these contracts based on the expiration um so if they're short expirations they're aggressive they are way out of the money those are likely actual positions wait in the money far out expirations those are likely hedges for long-term portfolios so that's very important so if you look at the spy chart you can see we're pretty much overextended here uh let's see we broke down we closed above that support so we'll see we're looking pretty bearish here we have our momentum and our rsi pointing to the downward direction so all of this put flow makes sense that we are likely going to see some some selling action spies down about i think point three percent after hours so this is a good indicator using this flow based off of your analysis of the strike prices the dates the calls to puts and then the type so how aggressive they're wanting to get through with that open interest is also important so this is actually the total number of contracts that are open that are out in circulation for this specific price so you use that information in cooperation with your technical analysis so you have some pretty much bearish signs looking here on the market you use this flow and you can cash in on your trades so i hope this helped if you have any questions specifically feel free to leave a comment down below don't forget to like and subscribe really appreciate the support and i i will definitely be making some more videos hope this helped thanks

Channel: MattL

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Length: 13min 44sec (824 seconds)

Published: Sat Jan 16 2021