U.S. markets open in 4 hours 53 minutes
  • S&P Futures

    3,873.00
    -25.75 (-0.66%)
     
  • Dow Futures

    31,335.00
    -174.00 (-0.55%)
     
  • Nasdaq Futures

    13,184.50
    -95.25 (-0.72%)
     
  • Russell 2000 Futures

    2,251.40
    -23.40 (-1.03%)
     
  • Crude Oil

    60.09
    -0.55 (-0.91%)
     
  • Gold

    1,719.70
    -3.30 (-0.19%)
     
  • Silver

    26.10
    -0.57 (-2.15%)
     
  • EUR/USD

    1.2013
    -0.0046 (-0.38%)
     
  • 10-Yr Bond

    1.4460
    0.0000 (0.00%)
     
  • Vix

    24.10
    -3.85 (-13.77%)
     
  • GBP/USD

    1.3873
    -0.0047 (-0.34%)
     
  • USD/JPY

    106.8870
    +0.1570 (+0.15%)
     
  • BTC-USD

    49,089.23
    +2,167.47 (+4.62%)
     
  • CMC Crypto 200

    987.73
    +1.08 (+0.11%)
     
  • FTSE 100

    6,579.18
    -9.35 (-0.14%)
     
  • Nikkei 225

    29,408.17
    -255.33 (-0.86%)
     

Understanding Avantor's Unusual Options Activity

  • Oops!
    Something went wrong.
    Please try again later.
Benzinga Insights
·2 min read
  • Oops!
    Something went wrong.
    Please try again later.

On Tuesday, shares of Avantor (NYSE: AVTR) saw unusual options activity. After the option alert, the stock price moved up to $23.53.

  • Sentiment: BEARISH

  • Option Type: TRADE

  • Trade Type: CALL

  • Expiration Date: 2020-10-16

  • Strike Price: $25.00

  • Volume: 1071

  • Open Interest: 3224

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 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 sign of unusual activity is the trading of a contract with an expiration date in the distant future. Usually, additional time until a contract expires allows more opportunity for it to reach its strike price and grow its time value. Time value is important to consider because it represents the difference between the strike price and the value of the underlying asset.

“Out of the money” contracts are unusual because they are purchased with a strike price far from the underlying asset price. “Out of the money” occurs when the underlying price is under the strike price on a call option, or above the strike price on a put option. Buyers and sellers try to take advantage of a large profit margin in these instances because they are expecting the value of the underlying asset to change dramatically in the future.

Understanding Sentiment

Options are “bullish” when a call is purchased at/near ask price or a put is sold at/near bid price. Options are “bearish” when a call is sold at/near bid price or a put is bought at/near ask price.

Although the activity is suggestive of these strategies, these observations are made without knowing the investor’s true intentions when purchasing these options contracts. An observer cannot be sure if the bettor is playing the contract outright or if they’re hedging a large underlying position in a common stock. For the latter case, the exposure a large investor has on their short position in common stock may be more meaningful than bullish options activity.

Trading Options With These Strategies

Unusual options activity is an advantageous strategy that may greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain as another tool to make an educated investment decision while taking other observations into account.

For more information to understand options alerts, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts

See more from Benzinga

© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.