loader image

Here’s Why We Like Our Institutional Options Flow to Be ‘Clean’

by | Apr 22, 2022 | Options

As you know, my bread and butter is tracking institutional order flow, namely in the options market.

There are few signals more clear than institutional and other big-money traders putting their cash to work someplace with such conviction — especially in this market.

And while unusual options activity can point us in the right direction, it’s not as easy as just following the orders, especially when it comes to the more involved trades like spreads.

Before we follow the money, we need to make sure their orders are “clean.”

Institutional Options Spreads Lack Conviction

Traders following institutional order flow need to see directional opening orders that aren’t tied to a stock position — what we call “clean” orders.

Clean orders give us a lot of information and tell us which direction the trader believes the underlying asset is headed.

It also gives us an idea of how far they expect the equity will move before the expiration date.

Spreads plays — especially straddles and strangles — don’t offer us a clear directional picture…

For example, when institutions trade spreads, a few things could happen… They could have a position in the company’s stock… But it’s also possible they could be buying calls or shorting another call. Or maybe they’re rolling a losing position — we just don’t know. 

And if we don’t know, we don’t trade it!

Simply put, this type of activity lacks the aggression and conviction we want to see when trading institutional order flow.

Check out the video clip above to watch me break down some flow and show you exactly why I’m not a fan of trading order flow in spread trades. 

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. Inflation is Skyrocketing!

The market is tanking and inflation has officially reached four-decade highs…

And anyone thinking the Federal Reserve is coming to the rescue is sorely mistaken.

Millions of Americans are having enough trouble filling their gas tanks let alone staying afloat in this choppy market.

As I see it, sitting on the sidelines is NOT an option!

So I’ve developed a game plan to help tackle this bear market — and keep inflation from working AGAINST us!

Here’s My Game Plan

*Stated results are atypical for given period. Past performance is not indicative of any future results. Trade at your own risk.

WRITTEN BY<br>Lance Ippolito

Lance Ippolito

What to read next

99 Problems and a “Pivot” is One

99 Problems and a “Pivot” is One

A friend of mine sent me this chart about three months ago. I should probably print it and keep it in my wallet next to a photo of my daughter. Given the sheer number of questions I’ve fielded lately, I’ll probably end up showing this chart more than her picture.

read more
Everything Everywhere, Going Down, All At Once

Everything Everywhere, Going Down, All At Once

When our momentum reading went negative last week, I didn’t know that we’d have the second largest bank failure in U.S. history three days later. All I knew was that it went negative… and that we got out of the way.

read more
Trust But Verify…

Trust But Verify…

I want to talk about our version of “Trust but Verify” in the markets. Qualification is the most important part of the investing process. And this F score value strategy looks to be crushing the current market.

read more

Have any questions? Contact Our Customer Service Team