Tips for Trading Alongside Smart Money

byInsiderFinance Teamon
Trader analyzing smart money options flow to identify upcoming market movements

Trading with Smart Money Options Flow

If you are new to using smart money options 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?

Don't Trade Blindly

Smart money order flow for ask activity (i.e. the "buy side") is a very powerful leading indicator, but that doesn't mean you can trade it blindly

Pay attention to develop a feel for what's normal. We can see orders but not the traders' intentions or hold time.

  • 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.

Understanding the "why" behind an order will produce the most winners.

  • For example, is there a catalyst, recent news, or earnings ahead?

Understand the Market Beyond Options Flow

To maximize your chances of success, understand the big picture of the Smart Market. Options flow is only one piece of data.

  • Look at Smart Market Sentiment pages to understand market conditions. Is smart money overall bullish or mixed today? What about different sectors or ETFs?
  • Always pull up a chart. Analyzing a chart may allow you to buy in cheaper than smart money.
  • Look at the trends on the Ticker Research page for additional context.

Find Tickers with 100% Bullish or 100% Bearish Options Flow

Use the Smart Market Equities Sentiment to look for the 100% (or close to) bullish or bearish stocks.

Equities trading with 100% bullish or bearish sentiments are typically not part of a broader strategy.

Understand Market Sentiment with ETF Flow

Use the Smart Market ETFs Sentiment to get a feel for market sentiment.

This is especially helpful when major index sentiments (like S&P) are clearly bullish or clearly bearish.

Find New Tickers or Changes in Flow Direction

Look for new names or changes in the "flow" direction.

Don't chase after trades that have already been run up (i.e. substantial bullish flows for weeks). The orders coming in are likely in the money (negative OTM %) and adding to positions that are already deeply in the green.

You'll have the best odds if you trade tickers that are either seeing new flow or the flow has changed directions (from bullish to bearish or from bearish to bullish). Puts that come in after large bull runs can be big winners.

Don't Trade through Earnings

Just don’t do it. How stock price will react to earnings is unpredictable. Sometimes stocks beat earnings and dip or miss earnings but rocket upwards.

You can always sell then buy back in. Don't get attached and trade with emotion.

Small Orders Can Be Big Winners

It's not always about big premiums. Small orders can be leading indicators that big orders will be pouring in soon.

Big flows almost always start with a small order, so pay close attention to the small orders, particularly “unusual” ones.

Pass on "News Jumps"

Sometimes stocks quickly move 2%+ when reacting to "breaking news". Don't act on these immediately; either pass or let it settle before entering.

These orders are typically from high-frequency trading bots that buy and sell within seconds.

Look at ETF sentiment for the bigger picture, not to trade

Most of the put flow that comes from SPY, IWM, QQQ, and others is probably a hedge in most cases, even high dollar ones.

ETF sentiment is only meaningful when it's clearly bullish or clearly bearish.

Know your trade plan and stick to it

  • Don't blindly trade - do your research.
  • Pick an entry and exit point before you trade.
  • Stick to the plan, and don't trade on emotion.