OptionMonster servis u kratkom textu opisuje probleme pracenja opcijskog trejdanja u real-time-u na Heatseeker-u
Watching other people's options June 2, 2009 Tue 10:50 AM CT

Most of what I look at is what other people are doing in the options market. People use options in a variety of ways, and it is often difficult to tell exactly what their play happens to be. Why do we care what others are doing? Because the options market is usually where those who are "in the know" go to place leveraged trades. Those with inside information (legal or otherwise) know they can get the most bang for their buck in the options market and are willing to pay for that leverage. So institutional-size call buying can be a great tipoff for big moves. A large call purchase would initially make you think that someone is very bullish. But it could be someone buying back a covered call. Or part of a spread, maybe a credit spread, which would be bearish. Or someone just rolling a position from one month to the next. Or someone buying protection on a short stock position, which would also be bearish. (See optionMONSTER's Education section) Covered Call GraphicOne of the questions we get quite frequently from readers is how to tell if someone is buying or selling an option. That is the key question, as I will explain below. But just determining that bit of information is very difficult.

If you are watching a specific option, you can monitor the trades and see if they are going off at or near the bid or the ask. If a contract trades in large size it is likely at the ask price, it is very likely institutional buying. Those looking for big moves are willing to pay the asked price to get the leverage they want. Yet there are only so many options one can watch, and this technique can quickly become insufficient.
To watch all the option trades, you need a huge pipeline of data and the algorithms to parse the bid/ask spread information. That is exactly what we provide, using our Heat Seeker and Depth Charge systems, and what our subscribers pay for.
Self-directed "retail" traders can look at other hints or watch individual options, but they simply don't have access to what they need to know if an option is bought or sold (or traded somewhere in the middle).

But just knowing that information is only the beginning. The next step is to discern whether the number of contracts traded is higher or lower than the open interest. If it is less than open interest, it could be buying back existing short positions, not initiating new long ones.
Next we need to determine if the trade was done as a spread or a more complex strategy. Purchased puts, for example, are not necessarily a bearish indicator; they could be a protective position against owning long stock in the same company.
Conversely, long calls could be protection on a short stock position. Sometimes we can see the stock trade at the same time, but other times it could involve previously established positions.
Options on indexes and exchange traded funds can be especially difficult, as they are often used in advanced hedging, dispersion, and arbitrage strategies. These types of plays can involve large blocks of options buying but show no obvious directional tell.
So figuring out what others are doing with options is often no less complex than options trading itself. Observing the action definitely can give you an edge in trading, but having good data--and knowing what to do with it--is crucial.

(This article originally appeared in optionMONSTER's Open Order newsletter of May 21.)