Most traders watch price. Institutions watch positioning. And more often than not, that positioning shows up in the options market before the stock ever moves.
In a recent video explainer, Barchart contributor Gavin McMaster describes how unusual options activity can reveal where large capital is quietly building positions — not by guessing direction, but by tracking conviction.
The key difference is simple: retail traders react to moves, while institutional traders position ahead of them.
Why Institutions Use Options First
When large funds want exposure, they don’t always go straight into shares. Options provide leverage, capital efficiency, and the ability to build size without immediately moving the underlying stock. That means the earliest signals of a major move often show up in the options market — not in the price action.
This is where most traders get it wrong. They treat unusual options activity as a shortcut, trying to copy trades without context. But the real edge isn’t in copying; it’s understanding how to read the signals that tip off big-money moves.
The Key Signal: Volume vs. Open Interest
One of the most important metrics highlighted is the volume-to-open interest ratio.
When volume massively exceeds open interest, it suggests new positions are being opened — not just traders closing or rotating existing ones. That’s where things get interesting.
Gavin highlights a clear example in Tesla (TSLA), where over 100,000 put contracts traded against roughly 1,000 open interest. That type of imbalance isn’t random! It points to aggressive positioning, likely from larger players building exposure to a downside move.
But one data point alone isn’t enough. The real signal comes from confirmation.
The Pattern Most Traders Miss
Instead of focusing on a single trade, the goal is to look for repeat activity across multiple signals:
- High volume relative to open interest
- Large premium being deployed
- Out-of-the-money contracts
- Repeated appearances across multiple days
- Alignment across different screeners (Options Flow + Open Interest Change)
When those conditions line up, it suggests that capital isn’t just testing a position. It’s building one.
This is exactly what Gavin noted across multiple names, including:
In these stocks, the flow showed consistent put-side activity, signaling potential bearish positioning being established beneath the surface.
The Confirmation Layer: Open Interest
Another critical piece is open interest change.
If volume spikes but open interest doesn’t increase, the move may just be short-term trading activity. But when open interest rises alongside volume, it confirms that positions are being held, not just traded intraday.
One example Gavin called out was in SoFi Technologies (SOFI), where a noticeable increase in open interest on specific call strikes suggested a more deliberate build in positioning.
That distinction matters, because the goal isn’t to chase noise — it’s to identify high-conviction block trades.
The Daily Workflow That Finds These Trades
The edge here isn’t one signal. It’s consistency.
A practical routine using Barchart might look like this:
- Start with Unusual Options Activity to identify contracts with extreme volume vs open interest
- Move to Options Flow to confirm direction, premium size, and repeated activity
- Check Open Interest Change to verify positions are building, not just rotating
This process turns raw data into something usable, and creates a way to track where large capital is positioning before the broader market reacts.
What This Really Tells You
Unusual options activity isn’t a guaranteed signal. It’s not a system. But it is one of the clearest ways to observe where institutional money is starting to move.
And that’s the difference:
- Most traders wait for confirmation in price.
- Smart traders look for confirmation in positioning.
You don’t need to guess the next move. You just need to know where capital is quietly building. Because when that positioning starts to show up across multiple signals, the move usually isn’t far behind.
Watch this quick clip by Gavin:
- Stream the full video on Unusual Options Volume
- Track unusual options activity across the market with Barchart
On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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