Option Flow Analysis

What are Options?

Options are financial contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset (like a stock) at a specific price (the strike price) before a specific date (the expiration date). There are two types:

• Call Options — give the right to buy. Traders buy calls when they expect the stock to go up.
• Put Options — give the right to sell. Traders buy puts when they expect the stock to go down, or to hedge existing positions.

Each option contract represents 100 shares of the underlying stock. Options are priced based on the stock price, strike distance, time to expiration, and market volatility.

Put/Call Ratio (P/C Ratio)

The Put/Call Ratio is the total put volume divided by total call volume. It measures the relative demand for puts vs calls:

• P/C < 0.7 — Bullish sentiment. More calls being traded than puts.
• P/C = 0.7 – 1.0 — Neutral. Normal market activity.
• P/C > 1.0 — Bearish sentiment or hedging. More puts being traded.

We calculate three separate P/C ratios: Market (all tickers), Index (SPY, QQQ, IWM, DIA, RSP — cleaner institutional signal), and Equity (single stocks only — more retail-influenced).

Option Flow & Notional Flow

Option Flow measures the dollar-weighted directional activity in the options market. Unlike simple volume counts, notional flow captures the conviction behind trades:

• Flow Direction: Each contract is classified as buyer-aggressive (last price > bid/ask midpoint) or seller-aggressive (last price < midpoint). This approximates whether the trade was initiated by a buyer or seller.
• Notional Flow: Calculated as lastPrice × volume × 100 × direction. A $50 option with 1,000 contracts carries more weight than a $0.10 option with 1,000 contracts.
• Net Flow: The sum of all call flow + put flow. Positive = net bullish positioning, negative = net bearish.

Call/Put Premium

Call Premium and Put Premium show the total dollar value of options traded on each side, regardless of direction. High premium on both sides simultaneously indicates active hedging or uncertainty, while dominance of one side suggests directional conviction.

Flow Strength (Volume / Open Interest)

The ratio of daily volume to open interest indicates whether activity represents new positions or closing positions:

• > 1.0 — New positions being opened (higher conviction)
• < 1.0 — Likely closing or rolling existing positions

Methodology & Limitations

This page scans option chains for 600+ tickers (S&P 500 components + major ETFs) daily. Data is sourced from Yahoo Finance with ~15 minute delay. All P/C ratios and flow metrics are our own calculations.

Limitations: This is an approximation. We cannot distinguish market makers from directional traders. High P/C ratios can indicate hedging rather than bearish sentiment. Near-term options (0-7 DTE) carry more speculative weight. The signal improves with data accumulation over days and weeks.

Update Schedule: Data is collected once daily after market close. The pipeline runs automatically as part of the daily backend update.