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