A quick thread on Options Flow trading...

I have seen a lot of new sites/apps/tools pop up trying to capture “options flow” and all have the same flaws and are so focused on what is trading rather than the more important question, why it is trading
On the first point, these automated scanners/alerts aim to be fast but are extremely inaccurate, making the value of the data quite useless, be careful what you trust..
They all rely on fill price versus the bid-ask, the problem there is most advanced trading firms are now disguising their orders, so the fill vs. the NBBO is often not what it seems.
They also have flaws not understanding spreads, stock-tied positions, adjustment trades, closing vs opening and more.
The only way for accuracy is a fairly tiresome, but required, more manual cross-check, a five-point system I utilize daily for our feed and we also curate out the ones that actually matter. I will be working on a way to try and automate this by building out better logic..someday
On the second point, the what holds way less value than the why, the most important part of flow tracking is determining catalysts, combining technical and fundamental analysis, being patient for optimal entries/exits.
I have been utilizing this style for fifteen years and can assure you these smart money trades entry/exits are almost always sub-optimal, but they also tend to end up with a high probability of being profitable if you focus on the ones that really are high-impact trades,
something I have been curating for a decade to find common links.

I have also been back-testing all of these notable trades, on the long-call side if held from trade date until one-week from expiry, the hit-rate (winners) is around 35-40%.
Notably on the opening put sale trades win-rates have averaged above 85%. Just jumping onboard a “flow alert” immediately is not going to be a profitable strategy, you need further detail analysis, the “color” is way more important.
The true value lies in having the historical data per ticker, our Hawk Database, to overlay with other investment approaches, technical/fundamental, to add to your arsenal and increase confidence in an idea and see where money is positioned.
Our new ticker search is also an amazing resource, it not only has every historical flow alert, but also all mentions of the name, technical, fundamental, analyst notes, etc.
There are multiple styles/approaches, I have been able to find success in just about any of them, whether it be combining technical triggers with weekly flows for quick hit and run profitable trades, or
exercising patience and waiting for optimal entries in top fundamental names at key technical support where I know longer-dated large bullish option positions are in open interest.
Like every trading approach, it takes work & research to be successful, there is no golden holy grail, and most importantly is having a proper trading strategy/plan in place which includes the ever-important risk management.
No matter how great things line up, sometimes the market throws you a curveball and you have to be able to react quickly and be prepared.
You can learn a lot from options positioning, both expected magnitude and timing of moves. Goldman had a great report out last year noting every Portfolio Manager needs to incorporate it into their process
particularly as the options market now exceeds the equity market. It can assess support levels better than a chart based on short-put positioning. It can assess post-earnings drift moves better than any fancy model. Endless things can be derived from the data.
I hope this helps some realize how incredibly valuable flow tracking can be, but also notates some key considerations for some of the things you may see on an non-curated platform

End Thread

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