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Option flow data provides valuable insights into the trading activity of options contracts. It reveals details such as the number of contracts bought or sold, along with the corresponding strike prices and expiration dates. By aggregating and analyzing this data, we can gauge the overall sentiment of traders and investors. Leveraging this information becomes instrumental in predicting market movements and uncovering potential trading opportunities.

Option flow data also allows traders to assess the balance of buying and selling activity for specific assets. A surge in call options purchased may indicate bullish sentiment, whereas a significant number of put options sold could suggest bearishness. By diligently monitoring this data over time, traders can identify trends and patterns that inform their trading strategies.

Key data for option flow analysis

A comprehensive analysis of option flows necessitates multiple data sets to obtain a holistic view of options activity. Apart from the typical metrics such as volume, open interest, strike price, expiration dates, put-call ratio, open interest, and block trades, there are additional advanced measures that provide a more complete picture and enable more precise identification of aggressors.

Volume and Open Interest

Trading volume and open interest are the two most important metrics as they can help traders define liquidity and the overall level of activity of crypto options.

Higher volume signifies a greater interest in a given trading pair and, therefore, higher liquidity for the assets involved while low volume correlates to low interest and lower liquidity. Open interest functions the same way—the more open contracts, the more interest there is in the asset and the more money flowing into the market.

Strike Prices and Expiration Dates

When considering strike prices in option flows, evaluate their proximity to the current spot price as this can significantly influence the value of the option. The closer the strike price is to the spot price, the higher the likelihood of the option being exercised. It’s also important to examine the pattern of expiration dates: are participants targeting long-term contracts or short-term? 

Put/Call Ratio (PCR)

A put option grants the holder the right to sell a crypto derivative at the strike price, while a call option provides the opportunity to purchase it. The ratio between these two options serves as an indicator that enables traders and investors to analyze the current market sentiment in both the short and long term.

When the PCR ratio is below 1.0, it signifies a preference for call options over puts by traders. This indicates a bullish sentiment, suggesting an optimistic outlook towards the current market trends. On the other hand, a PCR above 1.0 suggests that puts are favored over calls, potentially indicating a bearish sentiment or a significant amount of hedging among participants.

Block Trades

Block trades in crypto options are significant transactions that take place over-the-counter (OTC), primarily negotiated by market makers and other major participants. By utilizing tools like an options scanner, one can effectively identify and analyze these activities, providing valuable insights into current and forthcoming market trends.

Implied Volatility

Implied Volatility (IV) and crypto option prices are directly proportional to each other. When IV trends higher,, the price of the underlying asset will as well. It works the same in reverse, if IV trends lower,, the asset price will devalue as well. Assessing IV is useful for understanding the risk associated with potential moves in the options market.

There are several measures of IV, but the two most useful for determining option flows are:

  • IV Skew examines the distribution of implied volatility across various strike prices.
  • IV DVOL Index offers insight into the IV in the crypto market and helps traders understand the market expectations for future price movements.  

Advanced Analysis

Because cryptocurrencies are still a nascent asset class, it’s not always enough to apply traditional analysis methods to crypto options. For this reason, the Amberdata team has developed proprietary measures to accurately determine trade direction of aggressors and their impact on the market.

  • Dealer net inventory and gamma levels by strike
  • Dealer net exposure
  • Asset net positioning

Where To Get Crypto Option Flow Data

Every exchange has an open-source API that enables users to access the datasets needed for option flow analysis. However, organizations still need to build substantial data infrastructure to collect, manage, and utilize this data.

For this reason, it’s recommended that institutions seek an aggregated source of data that includes proprietary tools.

Amerdata offers a consolidated API for options trading data that includes exclusive option flow features. We’ve leveraged our team’s deep expertise in options trading to create over 25 proprietary heuristics that allow users to accurately tag trade aggressors, determine the flow, and understand its positioning. These features, including net volumes and net positioning are offered in pre-built Python notebooks to simplify implementation.

If you are interested om exploring our comprehensive options analytics tools, contact us to book a demo!

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