Part 12: Price Histograms of Index Options

SISCO'sOption World: Specific statistics and details for each individual contract month.

 

Here is yet another view of the index option data. Instead of simply comparing calls and puts, or in-the-money (IM) versus out-of-the-money (OM) options, the options are grouped by price. This was done so that you can see the level of trading activity by price. It's interesting to note that some days cheaper options are traded more while on other days expensive options are the most active. This isn't obvious from the other data presented and should be noted. Ask yourself why are options in excess of $70 for one contract the most actively traded options? Typically when these expensive options (deep in-the-money) are the most active, you'll see both the calls and puts equally active. It's interesting to note when the "big fish" jump in and hedge.

Below are the index option price histograms that divide all options into categories, or bins. The bins represent an arbitrary range of price. They're arbitrary because there was no particular reason in selecting or creating these price ranges other than affordability. Each chart has 20 bins. Ten bins for calls and ten bins for puts, and they are arranged in mirror order from the current index value. The call bins are arranged from $100+ to $0 (far to near) and the put bins are arranged from $0 to $100+ (near to far). Another note regarding the bins is that the bin marked c100 or p100 actually means all options greater than $70 in value. These various bins create the frequency histograms which illustrate which options were traded.

So for example, all options that range in price from $0 to $5 are grouped together into one category, or bin. This bin is then subdivided into calls and puts which is then subdivided into IM or OM options. So the volume of these options within this bin is plotted on either of two charts: IM or OM. The number of calls in the $5 bin are displayed as c5 and the number of puts are displayed as p5. The same is done for the pair of value charts. The value charts differ in that the show the dollar value of all of the options traded in that price range. This was determined by multiplying the last price by the volume traded. These value charts enable you to see how much money was spent each day at each price level.

Please note that there are two volume charts and two value charts for each index. It's best to view each pair separately so you can see the differences between each group. And should you note any differences, these differences are valid because the ranges between each pair has been intentionally made the same. This allows you to see the difference between the in-the-money (IM) and out-of-the-money (OM) options. So not only can you see which price ranges were the most active in each type but you can also tell which type of option (IM or OM) was preferred.

Lastly, each chart plots the last three days of activity so that you can see how the activity has changed.

These charts can be difficult to understand particularly since you need to view two charts simultaneously: IM and OM. Be mindful of what IM represents versus OM because each group carries a different amount of premium (OM is all premium while IM premiums vary). See if both IM and OM option volume is increasing. See if the call volume is increasing or decreasing. Notice if IM increases first and then is followed by OM activity. Notice if deep IM or OM are actively traded. The various patterns that these charts produce can have predictive value if one studies them closely.

 

SPX NDX DJX OEX XAU
In-the-Money Volume oiphSPXimvol oiphNDXimvol oiphDJXimvol oiphOEXimvol oiphXAUimvol
Out-of-the-Money Volume oiphSPXomvol oiphNDXomvol oiphDJXomvol oiphOEXomvol oiphXAUomvol
In-the-Money Dollar Value oiphSPXimval oiphNDXimval oiphDJXimval oiphOEXimval oiphXAUimval
Out-of-the-Money Dollar Value oiphSPXomval oiphNDXomval oiphDJXomval oiphOEXomval oiphXAUomval