Three Ways Options Activity Is ‘Unusual
One way options market activity can be considered unusual is when volume is exceptionally higher than its historical average. The volume of options activity refers to the number of contracts traded over a given time period. The number of unsettled contracts that have been traded, but not yet closed, is called open interest. These contracts are not yet closed because a buyer has not purchased the contract, or a seller has not sold it.
The trading of a contract with an expiration date in the distant future is another sign of unusual activity. Generally, additional time until a contract expires increases the potential for it to reach its strike price and grow its time value. Time value is important in this context because it represents the difference between the strike price and the value of the underlying asset.
Michael Gayed manages the ATAC US Rotation ETF and ATAC Rotation Fund.
His ETF rotates around risk-on and risk-off assets based on the price of lumber relative to gold.
He says the lumber-price surge is ominous and offers advice on how investors can protect themselves.
The price of lumber has quadrupled from a year ago. Or, in the words of the investor Michael Gayed, it s gone the way of bitcoin.
Indeed, as May and July lumber futures on the Chicago Mercantile Exchange reached a record high above $1,600, even the crypto exchange FTX entered the game by launching a lumber-futures market on Thursday.
After the Jobs Report There Was a Sudden Reversal of Rotation I m not convinced that all the stocks that have been pounded this week have bottomed.
The market was surprised by a much worse-than-expected Jobs Report this morning. The number was the biggest miss in over 20 years, but the big question is how much was the miss due to a lack of applicants rather than a lack of job openings. There has been much anecdotal evidence that supplementary unemployment is preventing some people from applying for a job that will actually pay less than they receive in unemployment.
Bonds initially spiked on the news due to the perception of economic weakness, but iShares 20+ Year Treasury Bond ETF (TLT) has reversed down as the news has been digested. These numbers do help to relieve some concerns about inflationary pressures, but there are still many signs of robust growth as the economy continues to open.
Three Indications Of Unusual Options Activity
One way options market activity can be considered unusual is when volume is exceptionally higher than its historical average. The volume of options activity refers to the number of contracts traded over a given time period. The number of contracts that have been traded, but not yet closed by either counterparty, is called open interest. A contract cannot be considered closed until there exists both a buyer and seller for it.
Another indicator of unusual options activity is the trading of a contract with an expiration date in the distant future. Additional time until a contract expires generally increases the potential for it to grow its time value and reach its strike price. It is important to consider time value because it represents the difference between the strike price and the value of the underlying asset.
May 3, 2021
As investors grow more optimistic about the economic recovery, safe-haven assets like Treasury bond ETFs may be losing their appeal.
According to IHS Markit Ltd data, short interest in the
iShares 20+ Year Treasury Bond ETF (NasdaqGS: TLT) has increased to 25% of shares outstanding, the highest level of short interest since early 2017, Bloomberg reports.
Furthermore, investors are dumping exposure to long-term Treasuries. The iShares 20+ Year Treasury Bond ETF has posted outflows every day so far this week, which puts the fund on pace for weekly withdrawals of over $1 billion, its worst weekly outflow since November, according to Bloomberg data.
Meanwhile, investors have shifted over toward the short end of the yield curve. The