When a stock suddenly sees 10x its normal options volume concentrated in short-dated call contracts, something is happening. Someone—likely with deep pockets or strong conviction—is making a leveraged bet on a directional move. This is unusual options activity, and it’s one of the most closely watched signals in short-term trading.
What Counts as “Unusual”?
Options activity becomes unusual when it deviates significantly from normal patterns:
| Metric | Normal | Unusual |
|---|---|---|
| Volume vs. open interest | Below open interest | Multiple times open interest |
| Volume vs. average | Near 20-day average | 3-10x daily average |
| Contract concentration | Spread across strikes | Heavy in specific strikes/dates |
| Put/call ratio shift | Near historical mean | Sudden spike or collapse |
| Trade size | Small/medium orders | Large block trades |
No single metric defines unusual activity. It’s the combination—high volume, concentrated strikes, large size, and deviation from historical norms—that makes activity noteworthy.
Why Options Activity Matters
Options markets often move before stock prices. There are several reasons for this:
1. Leverage Attracts Informed Traders
Options provide leveraged exposure. A trader expecting a 10% stock move can buy call options and potentially make 200-500% returns. This asymmetric payoff attracts traders who have high-conviction views—whether from superior analysis, industry knowledge, or pattern recognition.
2. Institutional Footprints
Large institutions use options for:
- Hedging existing positions (buying puts)
- Accumulating exposure before events (buying calls)
- Income generation (selling covered calls)
- Speculation on catalysts (directional bets)
Each strategy leaves a distinct footprint in the options data.
3. Pre-Event Positioning
Unusual activity frequently appears before:
- Earnings announcements
- FDA decisions
- M&A announcements
- Product launches
- Legal rulings
The activity doesn’t necessarily mean insider trading—it could be informed analysis—but the timing is often notable.
Key Metrics to Watch
Put/Call Ratio
The put/call ratio compares bearish bets (puts) to bullish bets (calls):
| Ratio | Interpretation |
|---|---|
| Below 0.5 | Heavily bullish positioning |
| 0.5 - 0.7 | Moderately bullish |
| 0.7 - 1.0 | Neutral to slightly bearish |
| Above 1.0 | More puts than calls—bearish sentiment |
| Above 1.5 | Extreme bearish positioning or hedging |
A sudden shift in the ratio often matters more than the absolute level. If a stock typically has a 0.6 put/call ratio and it spikes to 1.4, that’s a meaningful change regardless of what the “normal” range is for the broader market.
For a deeper dive into put/call ratios, see our What is Put/Call Ratio? article.
Volume Relative to Open Interest
Open interest is the total number of outstanding contracts. When daily volume exceeds open interest, it means significant new positions are being opened:
| Scenario | Signal |
|---|---|
| Volume far exceeds open interest | New positions being established |
| Volume near open interest | Moderate new interest |
| Volume below open interest | Mostly existing positions trading |
Implied Volatility Changes
When options prices rise without a corresponding stock move, implied volatility (IV) is increasing. This suggests the market expects a bigger move ahead:
| IV Change | Possible Meaning |
|---|---|
| IV rising, stock flat | Market pricing in upcoming event |
| IV rising, stock rising | Bullish momentum with conviction |
| IV rising, stock falling | Fear and hedging activity |
| IV dropping | Uncertainty resolving |
Types of Unusual Activity
Bullish Signals
| Pattern | Description |
|---|---|
| Call sweeps | Large call orders filled aggressively across exchanges |
| Put selling | Large put sales collecting premium (bullish bet) |
| Call spread buying | Defined-risk bullish bets |
| Low put/call ratio | More calls than puts being traded |
Bearish Signals
| Pattern | Description |
|---|---|
| Put sweeps | Large put orders filled aggressively |
| Call selling | Large call sales (bearish or income strategy) |
| Put spread buying | Defined-risk bearish bets |
| High put/call ratio | Puts dominating call volume |
Ambiguous Signals
Not all unusual activity has a clear direction:
| Pattern | Could Mean |
|---|---|
| Straddle buying | Expecting big move, direction unclear |
| Collar trades | Hedging existing long position |
| Roll activity | Extending existing position to later date |
| Spread combinations | Complex positioning with mixed signals |
How to Interpret the Signals
Context Matters
The same options activity can mean different things depending on context:
Before earnings:
- Call buying → Someone expects a beat
- Put buying → Could be hedging a long stock position, not necessarily bearish
After a big run-up:
- Put buying → Profit protection on existing gains
- Call selling → Taking profits via covered calls
During a selloff:
- Put buying → Panic hedging, often a contrarian buy signal
- Call buying → Bargain hunting by smart money
Size and Repetition
One large trade could be anything. Repeated unusual activity in the same direction over several days is more significant:
| Pattern | Conviction Level |
|---|---|
| Single large trade | Low—could be a hedge |
| Multiple days of directional flow | Medium—building a position |
| Sustained activity across strikes | High—broad conviction |
Who’s Trading
The type of order matters:
| Order Characteristic | Likely Trader |
|---|---|
| Bought at ask (sweep) | Aggressive, wants in now |
| Sold at bid | Aggressive seller |
| Mid-price fills | Patient, institutional |
| Block trades | Large institution |
| Small lots, many orders | Retail or algorithmic |
Common Pitfalls
1. Confirmation Bias
It’s easy to find unusual activity that supports a thesis you already hold. The data is only useful if you look at it objectively.
2. Hedging vs. Speculation
A massive put purchase might look bearish, but it could be a hedge on an even larger long stock position. Without knowing the full portfolio, you can’t be sure.
3. Market Maker Activity
Market makers provide liquidity and their trades show up in the data. Not every large trade is a directional bet—some are just inventory management.
4. Timing
Even when unusual activity correctly signals direction, the timing can be off. Options expire, and being right but early can still lose money.
Put/Call Ratio as a Contrarian Indicator
At extreme levels, the put/call ratio can work as a contrarian signal:
| Extreme | Contrarian View |
|---|---|
| Very high put/call (above 1.5) | Maximum fear—potential bottom |
| Very low put/call (below 0.4) | Maximum complacency—potential top |
This works because extremes in sentiment often mark turning points. When everyone is buying puts, much of the bad news may already be priced in.
Combining Options Data with Other Signals
Options activity is most powerful when combined with other data points:
| Options Signal | Confirming Signal | Combined Interpretation |
|---|---|---|
| Unusual call buying | Insider buying | Strong bullish alignment |
| Put/call spike | Negative sentiment shift | Bearish confirmation |
| Call sweeps | Analyst upgrade | Informed bullish positioning |
| Put buying | Congressional selling | Smart money exiting |
FinBrain’s Put/Call Data API provides historical put/call ratios that you can track alongside sentiment data, insider transactions, and other alternative data signals.
Key Takeaways
- Unusual options activity means volume, size, or patterns that deviate significantly from normal
- Options markets often move before stocks due to leverage and informed positioning
- Put/call ratio shifts can signal sentiment changes—extreme levels may be contrarian indicators
- Context is critical: the same trade can be bullish or bearish depending on the situation
- Repeated directional flow over multiple days carries more conviction than isolated trades
- Always consider that large trades might be hedges, not directional bets
- Options data is most useful when combined with other signals like insider activity and sentiment
Unusual options activity offers a real-time view into how sophisticated market participants are positioning. Combined with fundamental alternative data, it becomes a powerful tool for identifying conviction and sentiment shifts.