The activity is suggestive of these strategies, but an observer cannot be sure if a bettor is playing the contract outright or if the options bettor is hedging a large underlying position in common stock. These observations are made without knowing the investor's true intent by purchasing these options contracts. Options are "bearish" when a call is sold at/near bid price or a put is bought at/near ask price. Options are "bullish" when a call is purchased at/near ask price or a put is sold at/near bid price. These trades are made with the expectation that the value of the underlying asset is going to change dramatically in the future, and buyers and sellers will benefit from a greater profit margin. "Out of the money" contracts occur when the underlying price is under the strike price on a call option, or above the strike price on a put option. It is important to consider time value because it represents the difference between the strike price and the value of the underlying asset.Ĭontracts that are "out of the money" are also indicative of unusual options activity. Additional time until a contract expires generally increases the potential for it to grow its time value and reach its strike price. Another indicator of unusual options activity is the trading of a contract with an expiration date in the distant future.
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