By: Tom Gentile
on February 23rd, 2023
I use the Morning Reports lists often and I imagine many of you are as well so long as you are continuing to study options trading education with me and are using the suite of software analytics that my software is.
I am going to use the same image from my last lesson I gave regarding Cheap and Expensive IV list from the Morning (Options) Reports Lists in my tools www.tomsoptiontools.com.
A common question we get when we highlight and reference these Morning Reports Lists is how do we know if traders are buying these or selling these?
Here is a recent batch of images of the lists shown on the Morning Reports page.
This data on the lists do not specify a type of order.
Truthfully that isn’t something we concern ourselves with regarding these options.
The options on the Cheap and Expensive lists shown are ones to consider trading and the types of strategies one can consider on them were listed in a previous educational article on them.
What you need to determine is how you want to trade them if at all. And that is where a discussion between you and your broker should come in.
You then decide is you want to buy them to open or sell them to open. In either case this is where the options volume on the day gets calculated.
The Unusually High Call and Put Options Volume lists have that calculation and those options with the most are listed there.
Open Interest is the number of OPEN contracts that exist. Whether they were bought to open or sold to open isn’t shown. The key thing to know is the options are open and not yet closed so that speaks to the liquidity of the options.
The volume numbers show how many were bought or sold to open that particular day. This also speaks to their liquidity.
Many options traders learn that the higher the open interest and or volume the tighter the liquidity there is on the option.
Many of you may have been taught not to consider an option without there being a specific, minimum number of open interest or volume of contracts on it.
It is your decision whether to stick with that education or not.
What we want you to know is the Bid and Ask of the Option (premium) is the truer indication of liquidity for the option.
The difference between the bid and ask of an option premium is what we are talking about here.
If an option is priced $2.00 x $2.50 that is deemed a wide spread and it is a challenge to get out of this option quickly since the stock has to move enough so the option goes higher $0.50 just to break even.
Compare that to an option priced $2.00 X $2.05 and you can see what is deemed a ‘tight’ bid asl spread.
We like them in a price called penny-wide, meaning the spread is say $0.05 or less. We may not always get that, but that would be ideal.
A $0.05-wide spread is easier to cover and get to break even and then profitable quicker and with a price move much less that one with a $0.50-wide spread.
That is one of the reasons I like to focus on those lists with Unusually High AND/OR Highest Call or Put Option Volume.
App: Toms Option Tools
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.
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