Education & Tips

How To Use Option Flow 101 - WhaleStream

A beginners guide to option flow and how to use it. It is recommended to know the basics of options trading before learning about flow.

How To Use Option Flow 101 - WhaleStream
Before reading this, it is recommended that you have an understanding of options and how they work. If you don’t already have knowledge of how options work, we recommend watching this beginners guide: 

Since 2020 there has been a surge in interest in options trading. With this rise in popularity, more people began to see the benefits of leveraging options flow to gauge market sentiment and find unique outliers. The issue is, it can be extremely overwhelming if you don’t know what to look for. This write-up will give you some ideas of what to look for and help filter out some of the noise to help guide you to finding successful trades.

What is Options Flow? 

Options Flow is essentially the time and sales of the options markets. It is a live-stream of the trades that are executed on the options exchanges. Watching flow for every single order for all tickers would be insane, so WhaleStream exists to help put the more significant orders front and center. Options flow helps to uncover large and unusual trades to see what the Whales, Institutions and other large traders are buying and selling as the transactions occur. Because options are derivatives of a stock, you can get a good idea of where the market thinks the stock price is headed based on the option flow that comes in. 

Ok.. Now that you know what options flow is, let’s get to it!

3 types of Option Order Execution: Sweeps, Splits & Blocks.


Whales, Institutions and other Traders use Option Sweeps to quickly execute trades and to help conceal their large orders. Sweeps are often associated with urgency and also help the Whale/Smart Money Trader stay under the radar by splitting their total large order into multiple smaller orders that SWEEP across multiple exchanges to fill quickly. Sweeps execute within microseconds of each other and print to the tape as those smaller orders. WhaleStream’s system detects these orders and presents the total combined order. 
What is an Option Sweep? Visual Explanation

Let's take a look at an example:
Option Sweep Examples $UPST

On 6/7/2022, $UPST received multiple Sweep Orders that came in a little after an hour after market-open that were far OTM (Out of The Money).

Let’s outline some of the specifics:
- The 1st 3 Sweeps of the day all had a strike of $43.

- All 3 were OTM by over 6%

- They all expire within just 3 days.

- The order sizes were greater than the existing open interest.

- And the day’s volume was greater than the open interest. (This will always be true if an individual order’s size was greater than the open interest).

- The first SWEEP also had the “written” tag which indicates that it was an opening position and new contracts needed to be written in order to fill the entirety of the order. This would result in an increase in open interest (assuming there aren’t any closing positions that occur).

- The first 2 orders have a combined total of over $371K in premium.

- The first 2 orders also have the Highly Unusual tag which examines many parameters like premium, money-ness, side, volume, OI and others.
The Highly Unusual tag is unique to WhaleStream and the specific filters behind it are proprietary. However, the Highly Unusual tag has proven to be Highly profitable in the past. *Past performance is not indicative of future results.

When you put this information together, it implies that the buyer was expecting a large move within a short timeframe and is betting big money on this thesis.
As you can see from the charts below (pulled from the WhaleStream order X-Ray tool), it didn’t take long for the price of $UPST shares (bottom chart) to start moving down which caused the value of the PUT contracts (Top Chart) to rise.

The price of $UPST shares continued to fall throughout the day to reach a low of $44.04 (a 5.43% decrease from the entry of the first order and a 4.875% from the second order).
Option Sweep - WhaleStream - Order X-Ray Tool UPST 1

The contracts in the examples above were purchased at $1.33, $1.44 & $1.78 and while the $UPST share price never officially went under the strike of $43 that day, the contracts reached a high of $2.27. That’s a same day increase of 70.67% from the first order and 57.63% from the second order! WOWZA!

If that wasn’t enough for you, check out how it played out the following 3 days before expiring! 
Option Sweep - WhaleStream - Order X-Ray Tool UPST 2

As the days continued, these actually went in the money and expired ITM (In the money) by over $5!

The contracts reached a high of $6.44(+384%) on the day of expiration (6/10) and expired with a value of $5.42(+307%). 

Splits (Split Ticket Order)

Splits are almost identical to Sweeps EXCEPT that they are only sweeping across one exchange. Splits still represent urgency and occur when a Whale Trader wants to purchase (or sell) a large quantity of contracts but there is not 1 individual on the other side that can fill their entire order, so it fills in multiple smaller blocks to get the quickest fill possible on the exchange. WhaleStream’s system detects these orders and presents the total combined order.
What is an Option Split? Visual Explanation
Let’s take a look at an example:
Option Split Order Examples - $TSLA WhaleStream
On August 12th 2022, calls on Tesla ( $TSLA ) started pouring in around 11AM (ET). The first to kick off the large splits was almost $1Million in premium for $900C while the stock was trading at $878.76 (OTM by 2.4%) with an 8/19/22 expiration (7 DTE). More splits continued to come in throughout the day for strikes in the high $900s and even over $1,000. Tesla stock continued to soar and closed the day at $900. Fast forward to Monday (8/15) and the stock continued to rocket to a high of $939.40 and the $900C contracts reached a high of $48.75 which is an increase of almost 200%.

Blocks - Option Block Trades

Option Blocks are simply just 1:1 trades. An option block is a single buyer and a single seller. The entire order is filled as one large order and is printed to the tape as such. Although they do not clearly indicate the same level of urgency, they are still worth noting (especially when they have significant size and premium). 
Let’s look at an example:
Option Block Order Examples - $IWM WhaleStream
On 7/28/22 there was a large Block Order placed on $IWM for $190 Calls with a 9/16/22 Expiration. The Whale spent about $2.64Million on the position and it was filled above the ask. It was about 1.5 months until expiration and was OTM by 2.85%. This position came in during a bear market, so the large premium in a bullish directional bet was worth paying attention to. 
As of 8/15/22, $IWM closed the trading day at $201.07 and the contracts that the whale purchased for $4.68 are now trading for $13.43 which is over 180% gain in approximately 2-3 weeks. 
Option Block Order Example - $IWM - WhaleStream

Things to look for to find potential trading opportunities with options flow:

Bursts of Repeat flow:
When you see a lot of repeat activity on the same options contract, (especially in a short time window) it can indicate that maybe someone knows something, or that there is news that broke or is about to break and they are building their positions. Larger premiums and orders filled above the ask make the position more compelling as they show that they are trying to get in quickly by slapping the ask and betting big money on the trade.

Written Contracts or Opening Orders
When new contracts are written, it means that before that trade, there were not enough contracts in circulation to fill the order. While there may be many written contracts during a given day, it is not always something that can be identified. While some people assume that if the trade is larger than the OI, that it would be an opening order, it is not always the case. Volume must also be examined to know for sure. When you see the WhaleStream “Written” tag on an order, it is definitive that contracts had to be written to fill the order. When a buyer is entering a trade that is larger than the OI, they know there is a lack of liquidity. The fact that they are still willing to enter, shows confidence in their position. 

Short Dated Expirations = Confidence + Great for identifying short term sentiment
Looking at the short dated flow can also help to find a more accurate short term sentiment. When these short dated positions have large premiums, they indicate confidence. When risking big money, whales often like to buy themselves some extra time by purchasing further dated contracts to avoid time decay (theta). When they risk big money on short dates, it is more likely that they know something that we don’t and are trying to get in before the move happens.

When looking at sentiment, you should examine both the buys and the sales to get the net sentiment. Additionally, the strongest sentiment is one that shows confluence when measured both by the Volume (contracts) and by the premium. When both show the same sentiment, it is a stronger sentiment. WhaleStream lets you toggle between premium based sentiment and volume based sentiment to check for confluence. 

Far OTM with Short Dated Expirations:
When you see Aggressive trades with large premiums flowing into far OTM contracts that expire soon, pay attention. Sometimes, when institutions or smart money whales know something or are confident that a big move is coming, they will buy the further OTM, short-dated positions because they are cheaper and can pay big % when they play out.

Option Flow can be overwhelming at first and requires you to use some critical thinking. It is recommended that you take some time and examine from the side lines and also view historical data until you feel comfortable in identifying patterns and building your own trading strategies utilizing the flow. When used in conjunction with your other trading tools, option flow is an extremely powerful tool that you should definitely include in your tool belt. 
More Posts in Education & Tips
Highlighted Flow. What does it mean?

What is a Golden Sweep? Why are these orders highlighted? What makes them so special?

What Are Multi-Sweeps and Single-Sweeps?

What Are Option Sweep Orders and Split Orders?

What is an Option Block Order?

Option Block Orders? What does it mean?


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