High Volume Options Opportunities
A member has asked if extraordinarily high put volume might be a contrarian indicator, in that it may come from parties who have made large stock purchases and are protecting their positions.
This is certainly a possibility, but the trick in this matter is to use your time investigating opportunities with the greatest chance of success. In the case of unusually high put volume which has made its way through our gauntlet of filters, the probabilities seem to favor a downside move.
Note also that unusually high put (or call) volume can be caused either by purchases or sales. Looking only at the volume, you cannot tell if the moving party was a buyer or a seller. You know merely that high volume took place. To determine whether the moving party was a buyer or a seller, you have to look at time and sales data. If the price rose on high volume, it was probably because a buyer wanted the option more than the sellers wanted to sell, etc.
But even if you determine that the buyer of puts was the moving party, you still don’t know who they were. An institution is not likely to be involved in inside information– there is simply too much at risk–but an institution may have made an analysis that is more astute than the general market’s analysis, and thereby arrived at a valid bearish conclusion.
You should always look for confirming information before taking a position, either through technical or fundamental analysis or though another means that makes sense.