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How to Tell if Options Flow Is Too Good to Be True

by | May 17, 2022 | Options

If you’ve been following along at New Money Crew, then you know I love trading institutional order flow…

No doubt, you’ll also know traders need to be selective on what type of option order flow we’re looking for before taking a trade.

Of course, the size of the bet and the underlying stock are two of the biggest factors when making these decisions…

But all of that can be spoiled if the order flow hitting the option isn’t “clean” — meaning the trade we’re seeing isn’t tied to a position already held in the buyer’s book.

We want to see traders initiate new positions because it tells us if the buyer believes the stock will rise (if it’s a call) or fall (if it’s a put).

And although we can’t call them up and find out for certain what they’re up to, there are a few red flags we can look for that tell us if the options order flow is “clean.”

It Doesn’t Mean a Thing If It Isn’t ‘Clean’ Option Order Flow

While Mondays can be a great time to unload options and sell premium, it tends to be one slowest days of the week for institutional order flow.

So when I saw at first glance what looked like a big order in Keurig Dr Pepper Inc. (Nasdaq: KDP), you bet I got excited…

But on closer inspection, the order size ended up being a little too neat and tidy.

Not only did the trade come in mid-market between the bid and the ask… But it was for an even 1,000 contracts with no other volume to back up the position.

And that’s fishy…

Check out the video clip above to watch me break down the trade wasn’t clean option order flow and explain why I avoid even-numbered orders like this one. 

Don’t forget you can follow me @LanceIppolito on Twitter, Instagram and our YouTube channel for more trading insights and tips. And as always, you can find me right here talking stocks and options trading — and printing money — on WealthPress.com!

P.S. The Power of Small Numbers

Don’t let anyone dictate what position “size” is big…

Especially when we’re talking about weekly returns.

Slowly but surely, they can be the best thing for an account!

Think of them like a snowball… They start as tiny snowflakes…

But keep collecting them and let them build up… and it’ll keep growing and growing!

For more details, I’m holding my next advanced workshop at 4 p.m. EDT on Wednesday, June 22.

Secure Your Spot Now!

 

 

WRITTEN BY<br>Lance Ippolito

WRITTEN BY
Lance Ippolito

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