Unusual options activity shows contracts which are trading at abnormal volume levels or price levels. Traders typically use unusual options activity data to identify especially bullish or bearish bets made with high dollar amounts.
What is an Options Calendar?
An options calendar, also commonly called an options expiration calendar, generally lists the dates that exchange traded options expire on, including the popular quarterly expiration dates. An options calendar might also include bank and exchange holidays, as well as the last trading day and delivery date that corresponds to each listed option series. Some option expiration calendars include expiration dates for volatility products like VIX options that traders might use to speculate on option volatility movements or hedge their volatility exposure with.
What are Unusual Options?
A calendar or time spread strategy involves entering into both a long position and a short position in a futures or options contract with the same underlying asset asset but differing delivery dates. Each position is called a “leg” of the calendar spread strategy.
In a regular or long calendar spread, a trader will sell the short term contract and buy the long term contract on the same underlying asset for a net premium debit if the spread involves options. A reverse or short calendar spread involves buying the short term contract and selling the longer term contract for a net premium credit if options are involved.
If differing contract ratios are used for the two expiration dates, the spread is called a ratio calendar spread. For option calendar spreads, when the same strike prices are used, it is known as a horizontal spread. If different option strike prices are used, then the calendar spread is called a diagonal spread.
What is the Expiration Date for Options?
The expiration date of an option is the last day that it can be exercised on. The exercise process involves the buyer notifying the seller of the option that they wish to use their option to take the associated position in the underlying asset at its contractual strike price from the seller.
This so-called assignment notice has to be given to the seller before the time that the option expires on its expiration date for European style options. American style options can be exercised at any point up to and including their expiration date and time.
When Should You Trade a Calendar Spread?
Traders can use calendar spreads that involve shorting the near date option contract and buying the long date option contract when they expect the underlying asset to remain fairly stable until after the first option expires. They can also use such a position to profit from a decline in the implied volatility of their shorter term option relative to the implied volatility of their longer term option.
Adjusting Calendar Spreads
You can adjust an existing calendar spread position by closing out 1 or both of its 2 legs that you find undesirable and then opening any additional position that you prefer. Lifting a leg involves completely closing out 1 of the 2 legs in a calendar spread. You can also reduce or increase the notional amount or number of contracts involved in an existing calendar spread.
Stock options consist of financial contracts that give the holder the right — but not the obligation — to buy, in the case of a call option, or sell, in the case of a put option, a certain amount of the underlying stock at a given price on or before the contract’s expiration date.
Stock options listed on U.S. stock exchanges generally have a notional amount of 100 shares of stock. Stock options are also traded in the over the counter (OTC) market with variable notional amounts.
Option spreads consist of strategies where you purchase 1 option and simultaneously sell another. If both options are call options, the spread is known as a call spread. If both options are puts, then it is called a put spread. If the ratios of the 2 options differ, it is a ratio spread. If the expiration dates of the strategy’s 2 legs differ, it is known as a calendar spread.
Debit spreads are option strategies that involve simultaneously buying 1 option and selling another of the same class in such a way that you end up paying a net premium for the strategy.
Credit spreads are option strategies that involve buying one option and selling another of the same class and at the same time so that you end up receiving a net premium for the strategy.