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The volume of options activity refers to the number of shares contracts traded for a day.
Open interest describes unsettled contracts that have been traded but not closed by a counter-party. In other words, for each contract buyer, there must be a seller. A purchased contract remains open until a seller closes it, and vice versa.
Another gauge of unusual options activity is a contract with an expiration date in the distant future. Additional time until a contract expires generally increases the potential for it to grow its time value and reach its strike price.
It is important to consider time value because it represents the difference between the strike price and the value of the underlying options plug. This occurs when the underlying price is under the strike price on a call option, or above the strike price on a put option.
These trades are made because the underlying asset value is expected to change dramatically in the future, and the buyer or seller can take advantage of a greater profit margin. For the latter case, the exposure a large investor has on their short position in common stock may be more meaningful than bullish options activity.
Options plug These Strategies to Trade Options Unusual options activity is an advantageous strategy that may greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain as another tool to make an educated investment decision while taking other observations into account. Benzinga does not provide investment advice.
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