How To Trade Unusual Options Activity Thinkorswim

How to trade unusual options activity thinkorswim

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Want to spot the latest trends?

Screening Stocks with the Sizzle Index: Understanding Unusual Options Activity

How about engaging in a little people-watching?

For fashion trends, you’d sit at a bistro in Paris and watch the passersby. But for stock trends, you might follow the options crowd. Whether or not you’re deep into calls and puts in your own portfolio, simply tracking options volume can be an important indicator in your trading kit.

No transcontinental flight is necessary—you can do this kind of observation right from a single feature on the thinkorswim® trading platform with a tool called the Sizzle Index.

When Options Volume Sizzles

Options volume is best viewed in the context of other indicators. For instance, a jump in volume that coincides with a big up or down price move may be an indication of strength in the direction of the change. It’s fitting, then, that large percentage price increases that are accompanied by thin trading volume are less likely to indicate market direction with any staying power.

In fact, they may indicate that a reversal is taking shape.

When tracking options volume, you’ll want to discern whether the crowd is taking action—buying or selling—in call options as well as put options.

How To Find Unusual Options Activity

It’s also important to be able to track down unusual options volume when it occurs, because it could hint at where the underlying stock might go.

So, how best to get a little volume temperature reading without sticking your hand in the flame? Try the Sizzle Index on the thinkorswim platform from TD Ameritrade.

It’s an indicator for screening stocks posting unusual options volume compared to their recent draw.

The Sizzle Index Explained

If you’re the type who likes to know the math behind an indicator before implementing it into a strategy, here you go. The Sizzle Index is a ratio of a security’s current options volume over that security’s average options volume.

How to trade unusual options activity thinkorswim

So if you see a stock with a Sizzle Index of 5.00, that indicates its current daily options volume is five times that of its daily average options volume. A Sizzle Index of 0.50 indicates current volume at half of its average, and so on.

Think of it as an unusual options activity scanner that allows you to follow the money in a given stock and help you troll for potential trading ideas.

And because it’s impossible to keep tabs on all stocks all of the time, the Sizzle Index “quick scan” does your heavy lifting to identify unusually high values.

Use it to quickly get a condensed roundup of, in this case, the unusual suspects you may want to keep an eye on.

4 Simple Steps to a Personalized Sizzle Screen 

Using the Sizzle Index as a personal scanning device for unusual options activity can be done in four steps: scan, compare, refine, and save.

Before getting into the specifics, familiarize yourself with the Stock Hacker screen, located under the Scan tab in the thinkorswim platform (see figure 1).

1.

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Scan All Optionable Stocks

In the thinkorswim platform’s Scan > Stock Hacker tab, select the flame at the top right that represents the Sizzle Index. This will prefill the Stock Hacker with the parameters to find the securities with a per-share price above $5, volume above 100,000 shares, and market cap above $35MM that have the most unusual options volume. If you would like to edit any of these parameters, just use the sliders or text entry boxes.

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When those are set to your satisfaction, select Scan.

2. Compare with Other Metrics

The results will give you the top 10 most “sizzling” securities, measured by how many times their options volume is beating the volume of the past five days.

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And there’s more information within your reach. For instance, compare call and put activity within the sizzle stocks with the available put and call sizzle columns. To do this, select the gear icon at the top right of your scan results and select Customize. Using either the search box or the scroll menu, find the Call Sizzle Index and Put Sizzle Index column types and add them to your set using Add Item(s).

The Sizzle Index Explained

Select OK and you’ll see these new columns on your scan results, breaking down the unusual options volume in those symbols by trades in either the calls or puts of the underlying. You might also use Options Statistics on the Trade tab for greater detail. 

3.

Refine Your Sizzle

Use Stock Hacker under the Scan tab to further refine your sizzle list. For instance, say you’ll only bite at stocks trading under $20 per share.

How to trade unusual options activity thinkorswim

Select Add Fundamental Filter and under Criteria, select Last. Under Max, select $20. Hit the Scan button.

Want to increase your results?

Not All Unusual Options Activity Is The Same

Select Show to increase the number of stocks you’d like on your Sizzle Index.

4. Save Your Sizzle 

Now you can create either a static or a dynamic watchlist. A static watchlist takes a snapshot of the securities that currently meet your scan criteria and saves them. Go all the way to the right side of the screen on the Search Results ribbon and select Save As Watchlist to create a static watchlist and give it a name.

A dynamic watchlist will periodically refresh, running your scan criteria against the current market activity and updating the list with the new securities that meet those criteria. You can either save as a watchlist or set an alert as the sizzle changes.

Last Word on the Sizzle Index

One final note on the Sizzle Index: It doesn’t need to be scanned in order to be seen. You can add the Sizzle Index as a column to any watchlist in the thinkorswim platform to gauge the level of activity in a security’s options.

How to trade unusual options activity thinkorswim

You can also view it under Today’s Options Statistics on the All Products tab if you want to view it while looking at a specific option chain. Each of these locations offers call- and put-specific Sizzle Indices if you want to view options activity for just one side of the chain.

These are two more ways to help you see what’s cooking.

How to trade unusual options activity thinkorswim