Beyond the Obvious: Unearthing High-Conviction Signals
Unusual Options Activity (UOA) alerts, like the ones OptionsBell sends, point you at big institutional moves. But even the unusual trades add up to a lot of tape, and you can't chase all of them. To find the trades that matter, the "hidden gems" that often come before a big price move, you need advanced filtering techniques on top of basic alerts.
Reacting to every large options trade leads to analysis paralysis, or worse, to chasing low-probability setups. A tighter filter keeps your attention on the activity that counts, helps you manage risk, and turns a raw UOA feed into a short list of trades worth researching. It also cuts the Fear Of Missing Out (FOMO), because you know you're already looking at the significant institutional plays.
The Need for Advanced Filtering
OptionsBell flags unusual activity, but not all UOA is equal. Some trades are hedges, some are legs of a larger strategy, and some are just big speculative bets without much conviction behind them. Good filtering helps you:
- Isolate trades where institutions are putting serious capital at risk with a clear direction.
- Strip out market maker activity, routine hedging and small-impact trades.
- Raise your signal-to-noise ratio, so more of what you look at actually leads to price action.
- Spend your research time on promising setups instead of irrelevant data.
Key Advanced Filtering Criteria
Large premium and big volume are the starting point. These five criteria go further.
1. Open Interest (OI) vs. Volume Ratio
High volume tells you something is trading. High open interest tells you positions already exist. The filter you want is volume well above open interest (e.g., Volume > 2x OI) on one specific strike and expiration. That's new money coming in with fresh conviction, not old positions getting rolled or closed.
New money means someone believes in a move now, not that they're hanging on to an old thesis.
2. Execution Type: Sweeps vs. Blocks
Sweeps and blocks are both large institutional trades. For speculative directional plays, give sweeps priority. A sweep is an order split into small pieces and fired across several exchanges at once so it fills fast. The buyer wants in at almost any cost, which usually means high conviction.
Blocks are more often hedges or slower, pre-arranged trades. A sweep suggests the institution thinks a big move is close and wants its position on before the market reacts.
3. Price of the Underlying vs. Strike Price
Out-of-the-money (OTM) options are speculative already. Go one step further and look for deep out-of-the-money (DOTM) options with significant premium and volume. DOTM options need a much larger move in the stock to pay off, so a big bet on them signals extreme conviction in a large price swing.
Institutions don't usually put heavy premium into DOTM options without a reason. It can be an early sign of an explosive move.
4. Days-to-Expiry (DTE) and Implied Volatility (IV)
Short DTE suggests a move soon. Add IV to the picture: look for short-dated (e.g., <30 DTE) options with unusually high implied volatility (IV), especially when IV sits well above historical volatility (HV). The market, and the institution, expect a big move in the near term.
High IV on short-dated options means an event or swing is being priced in before expiration. A large call or put purchase at low IV, on the other hand, may be a slower, longer-term play or part of a volatility arbitrage trade.
5. Bid/Ask Spread and Execution Price
Options are bought at the ask and sold at the bid. Watch for trades filled aggressively at or above the ask price for calls, or at or below the bid price for puts. That's a trader paying up to get filled right now, which shows urgency and conviction.
Orders filled passively inside the bid-ask spread say much less about directional intent.
Table: Advanced Filtering Criteria for High-Conviction UOA
| Filtering Criteria | High-Conviction Signal | Interpretation |
|---|---|---|
| Volume vs. Open Interest | Volume > 2x Open Interest (on specific strike/exp) | New, aggressive money entering; fresh conviction |
| Execution Type | Sweeps (executed across multiple exchanges rapidly) | Urgency, strong desire to get filled; imminent move expected |
| Strike Price | Deep Out-of-the-Money (DOTM) with large premium | Extreme conviction in a very significant price swing |
| DTE & Implied Volatility | Short DTE (<30 days) with unusually high IV | Market expects large, imminent move; potential event catalyst |
| Execution Price | Aggressively at/above ask (calls) or at/below bid (puts) | Buyer/seller willing to pay premium for immediate fill; strong urgency |
Practical Application: Finding Your Hidden Gems
Precision in a Sea of Data
The tape holds a lot of information, but basic observation only gets you the obvious trades. Stack the filters: volume above 2x open interest, a sweep instead of a block, deep OTM strikes with real premium, short DTE with IV above HV, and fills at or through the ask or bid. A trade that passes all five is rare, and that's the point. OptionsBell gives you the starting list of unusual options activity; the filters decide which few alerts deserve your money.
References
- OptionsBell. "Unusual Options Activity Alerts." https://optionsbell.com/unusual-options-activity-alerts
- Investopedia. "Open Interest." https://www.investopedia.com/terms/o/openinterest.asp
- The Options Industry Council (OIC). "Options Trading Strategies." https://www.optionseducation.org/strategies