Tape Reading Using Options Time And Sales

After many years as a market maker on the floor of the CBOE, one of my trading strengths is deciphering options time and sales. I get a lot of questions about how to tell if options were bought or sold. Just because they trade on the bid DOES NOT mean there was an aggressive seller. You have to filter by that strike only, and put it in chronological order. As seen, there was an aggressive buyer all day. Time and sales erases at 8 AM EST. I had posted this idea this morning on the Simpler Stocks e-mail alerts. I cannot erase the annotations.

DXCM wide spread

The wide spread, and the wiliness of the buyer to pay the ask, was a big indication of the aggressiveness of this buyer.

DXCM persistent buying

When I was on the floor, many times the aggressive buyer was thought to be filled, so the market makers would try to show the wide bid/ask spread again. The floor broker representing the buyer would always yell “KEEP UP MY BID”. Indicating that there were more to buy. Note at 13:49 PM the market makers tried to change the market to .95 to 1.20, and the floor broker immediately reset the bid to reflect the big buyer. Then the buying on the ask resumed.

dxcm buying picking up

This is where many people get options time and sales wrong. The trades at 1.20 were not an aggressive seller. The aggressive buyer just exhausted all the sell orders for awhile. Eventually the market makers give in and “hit” the bid.

dxcm trades at 1.20

The option activity the last hour before an “event” is always more important. As seen, after the market makers hit the bid, the aggressive buyer returned, paying up to 1.35 right before the bell.

dxcm market maker bid

I love that the market is the ultimate decider on any theory. Today DXCM is down between 10 and 15 points. The aggressive buyer of the puts was right!!!!

dxcm aggressive put buyer paid

Chris Brecher

Chris Brecher Stock Vice President

Chris Brecher grew up in Jacksonville, Florida. Though he went to college for Paleontology and Marketing, he settled for being a Stock Broker. In watching the brokers in his office lose every time by taking shots in options, Chris wanted to find out who was making money on the other side.