Leveraging Options Data for Your Equity Strategies
With record options trading volume in 2021, options market data has become an important piece of any trading strategy as a leading indicator of market sentiment.
Analyzing option trade and volume data can provide a sense of market participant activity to help those trading options build out and test their trading models. But it also provides valuable information to guide equity models and analytical strategies.
An option allows traders to express their views on an underlying not only directionally up or down but also in terms of price and expectations across a specific time period. Using a breakdown of how each options series are trending in activity, firms can create customized sentiment indicators to guide their positions.
As an example, by looking at the ratios between opening buy calls and opening buy puts, a firm could build a custom indicator to alert when the ratios move to unusually high or low ends of the spectrum. This could help guide the timing of your own buying or selling activities.
When considering asset pricing, options positions can indicate bullish or bearish pricing sentiment based on open call positions. For example, a sudden increase in call positions on out-of-the-money near-term expiration contracts for a particular underlying could indicate bullish sentiment and potential for a near-term price increase.
As options trading continues to gain in popularity, firms can get free access to six months of historical PHLX Options Trade Outline (PHOTO) data* to test how it can help inform your trading. Contact Nasdaq Data Sales with any questions about PHOTO or other products in the Trade Outline suite, including Nasdaq Options Trade Outline (NOTO) and the ISE/GEMX Trade Profile products.
*Date range for six months of free historical data is Jan. 1 - June 30, 2014
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