Over the past days I’ve been very busy at working on the indicator. Basically had to rewrite it from scratch to remove a bug.
In any case, the indicator will do the following:
It plots Optiontrades on weekly options that enter the market at the ask, or above the ask with front end expiration or next week’s expiration.
The reason it filters out for trades that are at the ask or above the ask, is that we want a picture of what is being bought, and not what is being sold.
a long call position bought at the ask or above is considered bullish, while a long put position bought at the ask or above is considered bearish.
The indicator totals the trades by dollar amount during a selected timeframe and plots it as a bar. Green bars for calls, red bars for puts. If during one period of a selected timeframe the dollar amount of the calls is greater than the dollar amount of the puts, a green bar shows as the foreground, with the amount of put options colored light-red in the background. If during one period of a selected timeframe the dollar amount of the puts is greater than the dollar amount of the calls, a red bar shows as the foreground, with the amount of call options colored light-red as the background.
This is plotted as a single indicator with the dollar amount as scale on the right.
The next indicator is a Put/Call ratio; calculated as follows:
as of the first intraday bar, Puts and Call volumes (in dollars) are being accumulated, and the ratio being calculated and plotted as of each bar’s close. For example on a 15min Timeframe. the PCratio is being calculated at the close of the 1st bar. On the close of the 2nd bar, the total of the 1st and 2nd bar’s Put and Call volume are accumulated and the ratio calculated and plotted. On the close of the 3rd bar, the totals of the 1st, 2nd, and 3rd bar’s Put and Call volume are accumulated and the ratio calculated and plotted, and so on, until the close of the last bar of the day, which represents the ratio for the totals of that day. The formula to calculate the ratio:
P/C = Total $ Puts / (Total $ Puts + Total $ Calls) * 100
This will give us a range from 0 to 100, where 0 = 100% Calls, and 100 = 100% Puts. And thus the middle at 50 = neutral.
The option strikes included, are 4 strikes In the Money, and 7 strikes Out Of the Money as per yesterday’s close of the underlying stock.
The amount of tickers, strikes, and expiration dates are limited due to the datafeed I’m using at the moment.
On to some examples:
I started accumulating the data as of Friday last week, at which time I already noticed and mentioned Bullish flow in FB. Saw that large Call buying in the early afternoon Friday, which were next week’s expiration. Mentioned it on twitter. As a result you see the P/C ratio dip from neutral to around 30.
And FB already surpassed an entry for a possible CD leg higher.
Mentioned Monday that the PC ratio went from neutral-bearish to bullish. Followed Tuesday morning by a CD entry. Since SPY IWM QQQ trade options till 4:15, the last 15min is being accumaled in the 4PM bar. Today we saw some heavy Put buying after hours. which turned the ratio back over 50. Tomorrow FOMC, so we’ll see what’s going to happen. But the indicator clearly showed bullish flow up to this late afternoon.
We’re seeing a pattern develop in these charts: where we see optionflow turning bullish at or just before the entry of a CD leg. Mentioned it pre-market today on twitter, and took a trade myself this morning with weekly calls that worked out very well.
Mentioned TSLA on Monday. again the same thing: Bullish flow at CD entry
This is all still very preliminary, but so far this is looking pretty good.
I will add an option to filter out by expiration, so we can see indicator for just the front end expiring options, or just the next week’s expiring options.
If you have any questions, or even better, some recommendations, suggestions, Then by all means pitch in your thoughts. I appreciate it.
I am thinking on how I could make this available to others in some form. So let me know if you’re interested.