APIChangelogInfo
Back to Information Home

Opening Flow

Glossary

The phrase Opening Flow is used to describe options activity in which contracts are being opened, hence the name opening flow.

 

The goal of options flow trading is based on the premise of identifying smart money entering, or opening, trades and following suit. 

 

The difficulty lies in the fact that options flow data is limited and does not inform us whether or not the trade(s) in question are being opened or closed (or longed or shorted, for that matter). 

 

There are instances in which we can use data points like volume and open interest in order to help us determine if contracts are being opened. For example:  If a contract currently has 100 daily volume and 50 open interest and then a trade for 250 contracts hits the tape we know for certain that this 250 sized trade is ‘opening' by the virtue of there not being enough existing contracts. When a trade can 100% be identified as an opening trade it will be labeled as such in the flow. 

Image

NOTE: A trade NOT having this icon doesn't mean it wasn't an opening trade. Many trades won't have large round numbers that can be used to distinctively identify them as an opening trade. 

 

It gets much trickier to identify opening positions when the numbers don't line up that cleanly. We can sometimes recruit other data points to help us. A high volume to open interest ratio, as well as a skew to either the bid or the ask, are both great data points. For example: a contract has 0 volume and 1000 open interest. Trades varying in size from 1 contract - 100 contracts start hitting the tape. There's now 7500 volume (and still 1000 open interest.) All 7500 volume took place at or closer to the ask. While we can't exactly pinpoint how much of the activity was ‘opening flow’ it's clear that opening flow has taken place.

 

Of the 4 ways to trade options (BTO, BTC, STO, STC) opening flow, by definition, can only be BTO and STO orders. 

 

Opening Flow Resources