Understand the Why
Tip 2: Understand the Why
If you are new to using smart money order flow as a leading indicator of big market movements, start by understanding the intent behind the trade to see which ones get results.
- Why are they buying?
- What is that ticker doing today?
- Any recent news?
As you observe the options flow, focus on developing a feel for what's normal. We can see orders but not the traders' intentions.
- A large call position can be a hedge against a larger put position.
- A large put position can be a hedge against a larger call position.
We also don't know the traders' intended hold time. The trader could hold through expiration or be out of the trade in seconds.
Understanding the "why" behind an order will produce the most winners. For example, is there a catalyst, recent news, or earnings ahead?
