Trading on Unusual Option Volume

Many/most readers will have noticed that the way insider trading has been detected on the proposed Dow Jones/News deal is via unusual option activity. In the case of Dow Jones, there was some big buying pre-announcement of $45-ish calls that were then trading below $1. Post-announcement, they soared to $12, making buckets of money for some smart (ahem) people.

Without getting any deeper into the regulatory side of things, one of the things I like to keep an eye is unusual option volume, whether on the call or put side. A good resource for doing that sort of thing is Schaeffers, which has the appropriately named “Unusually High Option Volume” page. It looks the ratio of the prior days option volume to the average volume over the prior month. While Schaeffers doesn’t do it, you can obviously filter this data for known info, such as earnings releases, etc., which will drive option spikes — or better yet, include those companies, but compare the spikes to what we saw around previous earnings releases. (The latter is closer to what I do via a little program I run at IGreed HQ.)

The current unusual-activity leader? Andrew Corporation, which last week saw traded call options at 19 times its usual level. Mind you, that may be explained by the company’s earnings release last week, so you’d have to look back and see if there was similar option activity last time it released earnings.

Related posts:

  1. Options Traders and Mary Hart
  2. Option Backdating: Tech is the Worst Offender
  3. Apple’s Option Imbroglio: What Jobs Didn’t Know, and When He Didn’t Know It
  4. Catching Up: Venture-Backed IPO Volume, Nanotech Report, and Angel Investors Arise
  5. Microsoft’s Ballmer a No-Show (Again) on Earnings Call

Comments

  1. Now how do I turn this into an RSS feed?

  2. Agoracom says:

    Paul, thanks for the great post. I’ve seen a few articles similar to this that clearly demonstrate insider trading in the large/mega-cap world. Yet, the “tisk tisk” is always aimed at the small and micro-cap world.
    Make no mistake about it, the micro-cap world is full of scams and fast ones. It would just be nice if the big boys were called on it a little bit more often.
    Given the amount of takeovers in the pipe today and those inevitably coming down the private equity pipe, how many millions (tens? hundreds?) are going to be illegally made without so much as a glance from the SEC?
    Best,
    George

  3. Nick Perry says:

    In addition to earnings, another point to consider when looking at unusual volume is to look for dividend capture plays. Those, obviously, tend to occur just before a stock goes ex-div. I have also seen a big call or put spread trade spike the ratio.