Benefits of using Volsage Options Analysis

Since 2020, option volumes have grown massively- primarily driven by individual investor activity. Option positioning can increasingly drive moves in stocks. Large moves in major technology stocks in the summer of 2020 were driven by massive option trades. 2021's short squeezes started in stocks where dealers were massively short options.

Volsage’s analysis makes it possible to know for any name in real-time, (i) the actual option structures traded (ii) the net risk that has traded due to all the options activity so far on the day. Investors can use this information to tactically trade options in the stock, or to generally formulate their views on it.

Some examples of how investors could benefit from Volsage:

  • Investors can see a summary of net vega traded at the market level and understand whether the overall options market is risk on/off. Our analysis spans single stocks, indexes, ETFs and VIX.

  • Investors can see a summary of net vega traded by sector. If for example, Technology vega is for sale, while vega in a specific technology name is to buy, this may warrant further investigation into upcoming events in that name. At a portfolio level, knowing which sectors are risk-on versus which sectors are derisking can be useful for risk management.

  • Looking at actual option structures traded in any name- single/multi legged, with/without stock- is very useful as you can see the exact outright, distributional and temporal views of others and get trade ideas.

  • Net delta shares traded in a name gives an idea of the directional bias of all the options activity in a name so far on the day. For example, significant net delta shares to buy over a few days may signal that option traders are bullish on the name. An investor may consider adding to a long position in the stock or consider taking a second look at an existing short position.

  • Net standardized vega traded quantifies how much overall vol. risk the options market has bought/sold in a name. Net vega by maturity provides insight into the temporal distribution of vega buying/selling. An investor that sees size buying in say three week vega may consider researching any upcoming events in the next three weeks.

  • Looking at net standardized vega (NSV) by wing (put wing is 30 delta or lower puts and call wing is 30 delta or lower calls), an investor can infer the stock-price distributional bias in the options trading. For instance, if NSV is being bought in the call wing, one can infer that the expectation is for significantly higher stock prices. If the call wing is for sale and the put wing is to buy, the future distribution implies a higher probability of lower stock prices. Knowing this information will help the investor calibrate his views on the future implied stock price distribution and tactically adjust risk.

  • Looking at reversal conversions, boxes and jelly rolls that are trading in a name gives an investor insight into the plays being made on the future borrow rate in the stock and/or the future dividends that will be paid by the stock. Let’s say on Oct 1 an investor that is short NIO stock sees a reversal conversion trade in NIO, where a customer buys 1MM shares for $1.58, buys 10K Nov $2 strike puts for $0.69 and sells 10K Nov $2 strike calls at $0.16. The implied rate of borrow that the option trader has locked in on long stock is 44%. This signals that the stock may get harder to borrow in the coming weeks. The investor may then consider contacting his broker to lock in a term borrow rate.

Volsage has pioneered this unique way of analyzing option flows and investors who use our product would differentiate themselves from peers who don’t.

Options trading entails significant risk and is not appropriate for all investors. Complex option strategies carry extra risks. Please review the option disclosure document entitled the Characteristics and Risks of Standardized Options.