Major unusual options activity detected in Palantir stock this week

Palantir stock saw over $9 million out of the money call options trade today. This is a big bullish bet that the stock would reach $30 by Q1 2021 at the latest.

SAN FRANCISCO - Dec. 9, 2020 - PRLog -- View all unusual options activity for Palantir stock

Why are options such an important indicator for future stock price movements?

Even though options have traditionally been thought of as a hedging instrument, often times due to the amount of leverage they are also used by large institutional buyers to capitalize on large impeding stock movements.

What is unusual option activity?

Millions of options trades exchange hands every day. Not all of them are made equally, that's for sure. Some carry more information than others. Unusual option trades are that type of option trade.

Unusual options activity is defined as a single trade that is bought on the ask or sold on the bid, with unusual volume and/or trade size compared to the open interest for that particular strike and expiry. This means that these are new contracts being traded, expressing a fresh opinion on the underlying stock.

Why is this interesting? Well given a large enough trade and it being bought on the ask or sold on the bid it shows extreme urgency on the trader's side.

For example, let's look at a trade of 5,000 calls which had a bid and ask spread of $3.00 by $3.70 respectively, and the order was executed on the ask at $3.70.

What does that tell us?

The trader bought 5,000 call contracts, dropping $1.8M on the trade. Now, if they were patient and waited to fill the order in the middle of the bid and ask spread, say $3.35, they could have saved potentially $175K, but they didn't. To me, that says they have high expectations for this trade, and saving $175K is chump change.

This paired with the unusual high daily volume and size of the trade makes this type of trade very interesting, carrying a signal that there is a likelihood of a potential large move in the underlying stock. Unusually large purchases of options contracts indicate that someone thinks there is an impending event that will move a stock in a big way.

Optionsonar makes it very easy to stay in the loop on the latest unusual options activity by using a proprietary algorithm that was once only available to institutional traders on Wall Street.

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