Key insights
- The author's analysis suggests that institutional options flow is a more reliable leading indicator when the underlying stock is consolidating with a mid-range RSI (55-65) rather than already extended (RSI > 70). This is because institutions likely initiated positions before the stock's rapid price increase, making flow during consolidation a potentially more predictive signal for future price movement. This insight could improve trading strategies based on options activity.
Been digging into unusual options activity as a way to find stock setups. Not the million dollar sweep everyone tweets about. The pattern underneath it.
One thing stood out in the data.
When a big options bet came in on a stock that was already extended RSI above 70, stock up 5%+ on the week the stock barely moved afterward. Win rate on direction was around 53%. Basically random.
When the same size bet came in on a stock sitting in the RSI 55-65 range, consolidating, not already running, the stock followed through at a much higher rate. 86% directional accuracy on that bucket across 98 signals in April.
The difference makes sense when you think about it. Institutions do not buy calls when the stock is already ripping. They bought it a week ago. By the time the flow alert is visible the move is usually already happening and retail is just chasing the tail end of their position.
The flow that is actually in front of the move comes in when the stock looks boring. Quiet price action, mid-range RSI, no catalyst yet.
Completely changed how I filter which flow alerts are worth paying attention to.
Curious if anyone else uses options activity to find stock setups and what your filter looks like.