The stream of executed options trades, tagged by size, aggressiveness and venue, watched for evidence of informed positioning.
Flow data comes from the consolidated tape and is usually enriched: whether the trade printed at the bid or the ask, whether it was a single leg or part of a spread, whether it swept multiple exchanges. Those tags are what turn a print into a story.
The interpretation is much weaker than the marketing suggests. A large call purchase can be a bullish bet, a hedge against a short stock position, one leg of a spread reported separately, or a dealer unwinding. Without knowing the other side, flow is a hypothesis generator, not a signal.
Example: 8,000 XYZ $55 calls print at the ask for $0.80 in one sweep. Exciting — until the tape also shows 8,000 $60 calls sold at the same moment. It was a call spread, expressing a capped view rather than an aggressive one.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.
Educational only, not advice. Spotted an error? Post in Site Feedback.