Washingtoner - Robinhood sees large volume of unusual options activity traded

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SAN FRANCISCO - Washingtoner -- Stock of the online broker Robinhood famous for pioneering free stock trades captured large at the money call stock options expiring at the end of the year. Traders often use at the money stock options as a way to make a bet on an impeding move in the underlying stock. The $45 strike for puts saw more than $2 million traded just on Friday alone when the stock was hovering at about $42.

View the latest unusual options activity for HOOD stock

Options are an important indicator for future stock price movements. Even though options have traditionally been thought of as a hedging instrument, often times due to the amount of leverage they are also used by large institutional buyers to capitalize on large impeding stock movements.

You may not be able to tell from a glance, but not all option trades are created equal. Some carry more information than others - and unusual option trades are that type of trade.

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Unusual options activity is a type of trade being bought on the ask or sold on the bid, with unusual volume and/or trade size. This means that these are new contracts being traded, expressing a fresh opinion on the stock.

Why is this interesting? Well given a large enough trade and it being bought on the ask or sold on the bid it shows extreme urgency on the trader's side.

For example, let's look at a trade of 5,000 calls which had a bid and ask spread of $3.00 by $3.70 respectively, and the order was executed on the ask at $3.70.

What does that tell us?

The trader bought 5,000 call contracts, dropping $1.8M on the trade. Now, if they were patient and waited to fill the order in the middle of the bid and ask spread, say $3.35, they could have saved potentially $175K, but they didn't. To me, that says they have high expectations for this trade, and saving $175K is chump change.

A large purchase of call options carries a signal that there is a likelihood of a large move in the underlying stock.

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