Here at New Money Crew, you know I love to trade institutional order flow.
Seeing these big-money bets right as they hit the tape is one of the greatest weapons available to retail traders like us today…
But not every buy that comes across the tape is worth our attention, particularly when it comes to reading bearish options flow.
Like any skill, learning which positions are worth our time and money and honing our senses to better sniff them out takes practice and experience.
I’ve spent years of my career learning how to read bullish and bearish options flow…
At this point, it’s practically a reflex.
On Monday, two bearish trades hit the scanner for online pet supplies retailer Chewy Inc. (Nasdaq: CHWY).
To the untrained eye, it might look like a super bearish position…
However, if you know how to read bearish options flow, then you know there’s a good reason I passed on joining in on the trade…
How to Read Bearish Options Flow: 1 Major Clue to Consider
Whether it’s bearish or bullish, when we’re learning how to read order flow, the ideal bit of information we’re looking for in a trade is conviction
First, I want to know if a trade is “clean,” meaning I want to know if this is a completely new, standalone position that isn’t tied to any stock or options holdings of the buyer.
This is even more important when it comes to puts because they’re often used by traders as a hedge on the underlying stock.
Hedges are kind of like an insurance policy for traders to keep from losing their shirts if the company and its shares take a sudden, unexpected turn into the crapper.
Now I don’t know who these traders are, and I can’t call them up to ask if they hold a position in the underlying stock…
But there are a few signs in the order flow itself that helps us sort the wheat from the chaff.
One of the big giveaways traders need to look for is how far the option’s strike price is away from the current stock price.
If the put is several strikes out-of-the-money (which makes the option cheaper), there’s an excellent chance this trade is a hedge against potential losses in the underlying.
Of course that’s not the only factor we need to be aware of… Check out the quick video below and I’ll show you how to read this bearish options flow.
You can also follow me at 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!
Lance Ippolito
New Money Crew Head Trader
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*Stated results are atypical for given period. Past performance is not indicative of any future results. Trade at your own risk.
