FuboTV (NYSE:FUBO) stocks saw unusual options activity on Thursday. The stock price climbed to $ 33.12 following the option alert.
Three signs of unusual options activity
Unusually large volume (compared to historical averages) is one reason why options market activity can be considered unusual. Option activity volume refers to the number of contracts traded over a period of time. 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 bought the contract or a seller has not sold it.
Another indicator of unusual activity on options is the negotiation of a contract with an expiration date in the distant future. The extra time until a contract expires usually increases the potential for it to increase its time value and reach its strike price. It is important to consider the time value because it represents the difference between the strike price and the value of the underlying asset.
Out-of-the-money contracts are also indicative of unusual options activity. Out-of-the-money contracts occur when the underlying price is less than the strike price of a call option or greater than the strike price of a put option. These transactions are carried out with the expectation that the value of the underlying asset will change drastically in the future, and both buyers and sellers will benefit from a larger profit margin.
Understand the feeling
Options are “bullish” when a call is bought at / near the ask price or a put is sold at / near the bid price. Options are “bearish” when a call is sold at / near the bid price or a put is bought at / near the ask price.
These observations are made without knowing the true intention of the investor in purchasing these options contracts. Activity suggests these strategies, but an observer cannot be sure whether a bettor plays the contract up front or if the options bettor is hedging a large underlying position in common stocks. In the latter case, bullish option activity may be less significant than a large investor’s exposure to their short position in common stocks.
Use these option strategies
Unusual options activity is a profitable strategy that can greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain another tool for making an informed investment decision while taking into account other observations.
For more information on option alerts, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts
See more Benzinga
© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.