Happy Monday, traders…

Ben here. 

If you get confused looking at all the numbers on an options chain … it’s time to pay attention. 

I recently wrote about how I pick winning options contracts. 

SPOILER ALERT: I only trade ‘smart money’ sweeps from my Spyder Scanner.

But beyond my scanner, I want further confirmation through options volume and open interest.

Anyone looking at an options chain has seen these crucial liquidity metrics. However, many traders don’t fully understand them — and that’s a big problem. 

On the one hand, if you don’t grasp what you can learn from volume and open interest — you could miss out on big trading opportunities. (Or worse, you could make an easily avoidable mistake that leads to a brutal loss.)

On the other hand, by having a grasp of the differences between the two, you can accurately assess options chains and potentially use this knowledge to improve your contract selection (and thus, your trading performance).

So, without further ado, let me show you everything you need to know about my two favorite liquidity indicators — options volume and open interest…

Volume: The Short-Term Liquidity Indicator

Volume is a way to see how many contracts people traded on a specific underlying stock during one day. It’s like counting the number of apples sold at a market daily.

Think of volume as a snapshot of near-term demand for options contracts. 

For short-term (and day) traders, volume becomes super important. It’s like a heartbeat, showing the health and action of the market for that day.

Imagine there’s big news, like a company announcing a new product. This could make a lot of people want to buy a specific contract. 

When they do, you’ll see that contract’s volume shoot up. It’s like a big flashing sign saying, “Hey, look over here! These contracts are flying off the shelves!”

By keeping an eye on options volume, you can get a feel for what contracts have high demand (and which don’t). This can help you figure out where the big money is flowing. 

Furthermore, if you watch closely and understand the signs, you can use volume to gain hints about where stocks might be headed. 

This is why pundits on financial news networks are always talking about “unusual options volume.”

But remember, in options trading … timing is everything. Don’t just look at a contract with elevated volume and think you should buy it. 

There’s much more to it than that…

Open Interest: The Long-Term Liquidity Indicator

If volume measures short-term liquidity, then open interest is its long-term counterpart. 

Open interest represents the total number of active or “open” options contracts for a particular strike price and expiration date. 

In simpler terms, it tells you how many contracts are currently held by buyers and sellers.

Here’s how open interest is calculated:

When a buyer and seller both enter a new trade (one buys a new contract, and the other sells a new contract), open interest increases by one. 

If a buyer sells an existing contract to a new buyer, the open interest remains unchanged because no new contract was created — it was merely transferred.

By monitoring open interest this way, you can track where the ‘smart money’ is moving … and staying. 

Volume and open interest are like two sides of a coin, showing different parts of the trading world. 

For traders like me, who play multiple timeframes and trade durations, it’s great to have both of these tools. 

I look at both every single day on the options chains I’m watching. Volume is a sign of a near-term catalyst, while open interest is an indicator of mid-to-long-term positioning. 

Moreover, I pay close attention to the relationship between the two…

EXAMPLE: If I see a contract with a ton of open interest adding huge volume intraday, that’s a flashing sign that the ‘smart money’ is repeat-betting on a major sweep.

And speaking of the ‘smart money,’ let’s look at…

💰The Biggest Smart-Money Bets of the Day💰

• $5.61 million bearish bet on PFE 05/17/2024 $27 puts @ $1.42 avg. (seen on 4/5)

• $5.24 million bullish bet on GE 06/21/2024 $165 calls @ $5.95 avg. (seen on 4/5)

• $1.45 million bullish bet on TQQQ 04/12/2024 $59 calls @ $1.68 avg. (seen on 4/5)

Happy trading,

Ben Sturgill

P.S. If you want access to more ‘smart money’ sweeps like these…

This Wednesday, April 10 at 8:30 a.m. EST — I’m hosting an urgent LIVE WEBINAR to break down the juiciest trading opportunities I’m seeing this week.

I’m excited to see you there — CLICK HERE NOW TO RESERVE YOUR SEAT