Options trading strategies seems to always revolve around call options.
Call Sweeps or Option Calls Sweep attract so many beginners and experienced traders.
In this tutorial, you will learn how to recognize Call Sweeps, how to trade them and ultimately how to make money for your trading account with options calls sweep in 2022 and beyond.
Table of Contents
What is a Call Sweep in Options Trading?
If your fellow trader tells you that there is a Call Sweep on AAPL, you need to understand this:
Someone or an institution is aggressively buying big number of AAPL Call options as if that person is absolutely convinced AAL is about to go up.
Sweeping Calls involves buying large Calls contracts from multiple ECNs (Electronic Communication Network) as fast as possible.
Why Are Call Sweeps Important?
Call Sweeps are important in options trading not because of what they represent but rather because of what they triggered as a sentiment towards the stock.
That majority of retail traders are sold into the myth that stocks can only go up.
Don’t Ask me when that started and who is to blame.
So, the moment they identify a sweep call, that signal as a trigger to become bullish on the underlying stock regardless of the current condition of the market.
Typically, more traders do engage in buying calls when they see a sweep call.
Better yet, if the sweep call happens to be on a market index like SPY, then that is a clear “Carte Blanche” for all stocks to go up.
Are Call Sweeps Bullish or Bearish?
Therefore, it should be easy to make money trading options, right ?
All you have to do is to identify a sweep call (trust me, you will discover how easy this action is) and buy that contract and watch your account grow.
Well, not so fast.
A Sweep call is not always bullish.
Here is the main reason why.
When you identify a sweep Call on an option Flow screener like FlowAlgo , you do not know for sure if that is the trader primary position.
It could turn out that the sweep call is in fact part of a more complex trade or a hedge for a larger position.
How Can a Call be Bearish?
As a consequence, we can well have a Sweep call that is bearish.
This means that the trader is sweeping calls as a protection for perhaps a very big bearish position.
It is so easy for retail traders to fall in this trap of unusual Sweep Calls because they are just too eager to trade
However, you can trade other types of unusual options activity that are not sweep calls.
How do I Scan for Unusual Options Activity?
There are Put sweeps but for some reason, I have never seen any option trader get excited about puts sweeps.
Why is that please?
If you know, please leave me a response in the comment section.
How do you spot an unusual options activity?
The answer nowadays is simply by reading the Unusual Options activity from your options Flow of choice.
I use FlowAlgo but these days, there are so many.
Each option Flow platform ( Blackboxstocks, TradeUI, Market Data, Tradytics, Quant Data, SweepCast) has a dedicated section for Unusual Options Activity.
Now, the trick is to know what really is unusual.
Here are some key Unusual Options Activity that you need to know:
- A very close expiration date| Example, we are Wednesday, and Substantial money comes in for Friday Expiration
- A large volume of contracts that is higher than the Existing Open Interest
- A strike Price that Is very far from the Money
- A Strike Price that is Very Deep In the Money
How do I track large Options trading?
One method is using one of the Option Flow scanners mentioned above.
They often cost money which can be a hinderance for an option trader beginner.
Should that be your situation, create a free E*TRADE account and follow the tutorial below.
On the E*TRADE option chain for any stock, you click on Trade Tape.
Then the view below appears.
Then all you have to do is to select the filter (orange arrow) and set the quantity you desire.
For most stocks, you can use a threshold of 100 contracts to get the largest options been traded that day.
While you are on E*TRADE, you can also leverage all the options Scanners and Screeners the platform provides.
Why Is Option Flow Important?
Option Flow serves as an indicator that a good trade is pending on an instrument or stock.
However, beware than the direction is not known at all at the time of the option flow.
Further analysis is required to determine the strategy that will lead you to make money with the option flow information.
What does Call Sweep near the ASK Price mean?
Many traders like to think that because a Call Sweep took place near the ASK price this means that there is more conviction about the bullish nature of that call sweep.
That is not always true.
In my experience using an Option Flow Tool such as FlowAlgo since 2017, it can be a hit and miss.
How do I scan for good Options?
The secret to scan good options that you can trade is becoming familiar with a few stocks.
By that I mean you are able to read the stock charts and gain confidence in determining support and resistance levels.
Then, when you find yourself with information from a scanner, you can set up an educated strategy on how to take advantage of the opportunity.
How Do you find Options Sweeps?
You can find Options Sweeps from one of the Following Options Flow tools.
|ETRADE Trade Tape
How do you read unusual whale alerts?
In order to properly read whale alerts, you need to keep in mind that their main positions may be hidden.
People Also Ask FAQs
How much can you lose on a call option?
The good thing about buying call options is that you know exactly how much you can lose at most.
That is whatever your initial investment is.
But you do not have to lose it all either.
You can set a stoploss to determine the maximum amount you are willing to lose.
Example: You buy QQQ JULY29 350 Calls for 2 cents per contract.
If you decide to buy just on contract, that will cost you exactly $2 in real money.
Taht $2 is the maximum money you can lose.
Is there a Screener for Options?
Yes, there is a whole slew of expensive screeners for Options that hold retail traders into bondage.
Do not fall for that.
There are free ones from brokers such as E*TRADE.
At the end of the day, you should not be prisoner of an options scanner or screener because the market makers will only allow you to see part of their trades.
Is a Call Sweep Good Or Bad ?
A call sweep by itself is neither good or bad.
It is the outcome of your trade from the Call sweep that determine if you had a good or bad trade.
When you identify a Call sweep, ALL you have to tell yourself is that there is potential move coming up.
Then if you are patient enough n do not want to guess, the correct trade will easily reveal itself to you.
What Are calls vs Puts?
You buy calls when you think that the underlying stock will go up.
This is known as being bullish on that stock.
Conversely, you buy puts if you think the stock of interest will go down.
In such scenario, you are bearish on the underlying stock.
If you happen to own shares of a stock, you can reverse your strategy by selling to calls to open your position when you are bearish on the stock of interest.
Why would you want to sell calls instead of buying puts, read below for a complete answer.
What is the difference between Block and Sweep?
A block trade is a trade on the stock with large volume whereas a Sweep is typically an unusual trade on the option side of a given stock.
- Example: A450k shares of stock ABC can be traded as a block for $100
- Sweep Example: SPY JULY15 385 Calls for 2.41 (Ask price)
Here is my YouTube video detailing the nuances between different types of unusual trade types.
Why Sell a Call instead of buying a Put?
The number one reason a trader would sell a call instead of buying a put is because they are bearish on the stock.
However, buy selling the call, that means that they own enough shares of the stock and do not mind losing them.
The second reason for this option strategy is to receive money first instead of spending money to start the trade.
Since we know that 66% of the options expires worthless, the probability of winning when you sell options is much higher than when you buy options.
Overall, we can occlude that selling options is an income generation strategy because the trade can do this, rinse and repeat multiple times thus growing their trading account.
FINAL THOUGHTS ON WAHT IS CALL SWEEPS
I share how to recognize Call sweep with the multiple Options Flow Tools available.
A free version from E*TRADE helps scan for large options trades.
Finally, you ought to be cautious not to rely heavily on Unusual Options activity alone.
Otherwise, you might be surprised over the long wrong why your personal net worth is not moving in your desire direction.
Hold a Master Degree in Electrical engineering from Texas A&M University.
African born – French Raised and US matured who speak 5 languages.
Active Stock Options Trader and Coach since 2014.
Most Swing Trade weekly Options and Specialize in 10-Baggers !
YouTube Channel: https://www.youtube.com/c/SuccessfulTradings
Other Website: https://237answersblog.com/