Heating Up Calls

When looking for options trades, I look at option flow to figure out where the money is heading. To do this, I use this tool to find options with unusual activity,

Today I’m looking at calls that are heating up. That means calls that are at least 200% above their daily volume (based on the last 10 days). I also want to screen for options with high open interest.

If volume is high but open interest is very low, that means the trading activity was traders closing out their positions, not opening new ones.

Here’s what shows up on the screen:

Again, I want to narrow these “heating up” calls down to ones that indicate a bullish trend. What I’m looking for is:

• High open interest

• Calls that are out of the money

• Calls that are close to expiration (within a couple months)

Macy’s is one that stands out - it’s up a bit today, but could be one of the laggards in this frenzied retail short squeeze. In other words, now that AMC and Blackberry have run their course for now, Macy’s could be the next retailer to run up.

One note - if you aren’t absolutely certain about the timing of a move, just buy the shares instead of the options. It’s easy to lose money buying and holding calls even if you’re right about the direction of the stock, especially if implied volatility (IV) is high.

Buying shares helps to reduce the risk of making your trade an all-or-nothing proposition.

GEO is another stock I’m seeing high options activity on. It show up 60% this morning but quickly fell after it was halted. May be headed back up soon.

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