I bought Option Scanner Pro (OPS) early this year and wanted to test it with some small, real money trades. Below are the highlights (and a few low lights) of my experience with this product.
OPS is a windows desktop product that costs a one-time fee of $147.
It scans the first two option expirations of all US listed stocks and ETFs. It looks at every single call and put option traded in those two months and compares the volume traded to the current level of open interest.
The idea behind this method is, as the developer calls it, "to follow the smart money". In other words, big trades going through on an otherwise thinly traded series are suspicious. When these trades are seen going through as a stock is approaching an earnings announcement, it could be that somebody knows something the rest of the market doesn't.
This won't always be the case. Sometimes a stock can see suspicious trading activity without any company announcement due. In those cases, perhaps information has leaked that the firm has become the target of a takeover or even that some bad news is about to hit the market.
The point is that unusual option volumes can often be important clues that something is about to break in that stock.
Below you will find examples I found using the product over the past few months.
I turned $150 into $1,950 in only 29 days with this trade. To be fair, this trade is my biggest win so far using OPS. I have had plenty of losing trades too, which you can read about under my trading link, but the gains made like this one are great examples of how abnormal volumes can indeed indicate some inside information is fueling option activity.
Here is a screen shot of the Option Scanner results page after the US market had closed on the 8th July, 2016. I ran the scan on the Monday, which is why the date at the bottom of the program shows the date as the 11th. But the data is from the close of business on Friday the 8th.
The top pane here where I've circled the entry shows the top listed call options with high volume vs open interest.
For BID, the scanner is pulling up the $30 call option that is to expire on the 19th August. This one strike has traded 18,607 contracts over 442 existing contracts in open interest.
Now, you might ask "what about the top two entries, CY and CMCSA? You're cherry picking these results!".
I don't take positions in every or even only the top listed stocks that show in the list each day. Once I find a candidate, I go and take a look at the entire series just to see if the volumes and open interest of the other strikes are high or low. If all strikes are showing a lot of volume or there is a lot of outstanding open interest, then the 18k shown isn't really significant when viewing the entire series. What I'm looking for are "standout" opportunities. So, here is a screen grab of the option chain on that day, which I took from Google Finance:
As you can see, 18k contracts traded is a very significant amount for this stock. Only 11 other contracts traded across all the other strikes for this day.
While it is interesting to see an amount like this trade, this alone doesn't have any context. However, when I looked at the Yahoo! earnings calendar it shows BID were due to announce their Q2 earnings numbers on the 8th August. So now, it looks like perhaps some inside information has leaked, or at least someone knows something not reflected in the price of the stock.
I ended up buying 3 contracts of the $30 calls for 0.50 each. My net spend was $150.
On Monday the 8th August, news broke that the stock's earnings were larger than expected and the stock jumped 23% post the announcement.
I didn't hold onto the trade until expiration; I closed the trade out on Tuesday the 9th August by selling the call options back to the market for a price of $7!
From this one trade, I turned $150 into $1,950, which is a 1,300% return!
Here are the news announcements regarding the earnings break:
As mentioned, I didn't take every opportunity presented, but here are two interesting examples of suspicious put option volumes prior to a stock tanking outside of an earnings announcements.
Just a reminder: Put options carry the right to "sell" a stock at a given price. So, the price of a put option will go UP when the price of the stock goes DOWN. You buy put options if you expect the stock price to decrease.
On the 19th April, options in Lending Club were top of the list when I ran the scans on the 20th. The 20th May $8 put options traded 16,437 over 2,027 in open interest. That's 810% increase. The price of these puts on the close were 0.80.
On the 9th May, the CEO was dismissed. Reports at the time weren't conclusive as to if he was fired, resigned or what. Either way news broke that he violated securities law by misrepresenting investors with their company information. As a result, the stock tanked 35% on the news.
At the close of business on the 9th May, the put options were trading at 2.80. If you had bought those puts, you would have made 350% return on your investment in 20 days!
Here is more on this one with the news articles:
On the 30th March SUNE, while not at the top of the list, showed up with a large volume spike on the 0.50 put options for the 1st April expiration. I made this announcement on my FaceBook page:
Since then, it has been reported that SUNE is indeed preparing to file for bankruptcy, which has seen the shares tumble further since this post to end Friday the 1st April's session trading at 0.24.
|Trade Length||23 Days|
|Trade Length||16 Days|
|Trade Length||36 Days|
The Option Scanner Pro is normally $591 per year but currently it is being offered with a $394 discount for Option Trading Tips subscribers for $197 for a LIFETIME license. Yes, you only pay once and you will have this product for life. The package includes:
I have personally purchased and tested the product and will continue to make real money trades based on the scan results. And for $197 it is well worth it.