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How to use Option Volume and Open Interest

 

Option volume gives you an important insight into the strength of the current underlying direction of a stock. A large percentage change in the price of the  underlying stock, accompanied by an increase in option volume, is a good indication of the strength of a change. A large percentage change in price, accompanied by low option volume, is not  indicating a strong direction of change. OptionVine offers the trader information that is not available from other sources. OptionVine totals the call option volume that is being bought or sold on the bid and ask, as well as the put option volume that trades on the bid and ask in real time. This additional information provides further insight in to the underlying direction of the stock price. More importantly, stocks that have not  made a move accompanied by an increase in call buying or call ask volume, or put buying, or ask volume, is a strong indication of a potential stock move.

Option open interest provides further insight into stock price direction. Comparison of option open interest to volume yields limited information. However, when this comparison is utilized with OptionVine's bid ask option volume data, it becomes a valuable stock direction tool. When looking at the open interest of an option, and 70% of the days call volume has traded on the ask (people were buying calls), and the volume  exceeded the open interest, then the stock direction of that the volume is anticipated. Additionally, open interest helps determine if the option volume is unusually high or low for a particular option.