How to Effectively Use Options Flow

Evan Zhou
March 31, 2021

Options flow has gained great traction over the last few years. With a booming retail trading market, more people are trying to leverage options flow to gauge market sentiment and get ahead of others. In this post, we are going to talk about some tips on how to effectively use live options flow on TradingFlow to find excellent trading setups. Since millions of options are traded every day, finding solid setups can sometimes be like finding a needle in a haystack. Therefore, one needs to understand different technicalities of options flow to separate the wheat from the chaff. This post will assume that you already know what calls and puts are. If you do no, please refer to this tutorial before continuing with this post.

Type of Options Orders

Before we dive into the tips and tricks of using options flow data, we need to first talk about three different kinds of options orders that you will often see - Sweeps and Blocks.

Types of options orders: sweeps vs blocks

1. Sweeps

Sweeps are orders that are split up into smaller trades and are completed via multiple exchanges. There are many reasons traders often trade via sweep orders.

First, if someone has some extra information about a company and they are confident that the price will move in a particular direction, they will want to hide their knowledge by using a sweep order. Since sweep orders are filled as multiple small orders, most people are not able to see the underlying large activity. Second, if a trader wants to get their order filled as soon as possible, they can often choose a sweep order to leverage the liquidity from multiple exchanges. In essence, a trader either wants to hide something or is in a hurry to complete a trader. Because of this fact, sweeps often provide us a signal that someone knows something that we do not which is why they are trying to hide their trade or get it filled as soon as possible.

2. Blocks

Blocks are just very large single trades. Usually, its large institutions buying or selling a very large number of options contracts. Those are considered as blocks in TradingFlow Option Flow Dashboard. More specifically, any trade with at least 5000 volume is considered a block trade.

Tips on Finding Effective Setups

Now that we know what each order type means, we can discuss some concise tips on how to effectively find good setups using options flow. These tips are quite subjective and come from our own experience in using live options flow to find trades. There are always more ways to look at the flow since it is more of an art than a science. However, we hope these will prove useful to you in your journey of becoming a better trader.

Final Thoughts

Finally, we would like to reiterate that analyzing options flow is more of an art than a science. Please spend time looking at historical patterns and build your own strategies. Options flow contains a rich amount of data that if used correctly can immensely improve your trading.