3 Stock Options Trading Stats on thinkorswim®

When trading options, different statistics can provide insight into what might be happening in the market. With the help of options statistics on the thinkorswim® platform, option traders might be able to make more informed decisions about a particular strategy. Traders can find statistics by navigating to Today's Options Statistics under the Trade tab on thinkorswim.

The left column of the options statistics page is devoted to measures of volatility (vol)—both historical volatility¹ (HV) and implied volatility (IV)—and how current readings compare to measures over the past year.

IV is the market's forecast of future variability in the underlying stock. It's calculated using a theoretical options pricing model that includes multiple variables including the prices of currently listed options and it's expressed as an annualized level. For example, the stock in the image above shows a current IV reading of 22.81%. This indicates that the options market is essentially pricing in about a 23% variability around the current price as an annualized measurement. Other data on the page adds perspective.

• 52-week IV High/Low. Over the last year, the stock in the above image has seen IV as high as 37% and as low as 16.4%.
• Current IV Percentile. The reading of 31% means the current IV of 22.81 is in the lowest third of all IV readings over the last year. Over the past 52 weeks, 69% of the time, IV was higher than it is now.

IV is relatively low in this stock right now. For more context, a trader might compare IV data to HV.

IV is a theoretical forward-looking measure implied by the options market. HV, by contrast, is backward-looking. It's a moving average of actual price variability in the stock over the previous 52 weeks.

• 52-week HV High/Low. Over the past year, the stock's HV has been as high as 42.8% and as low as 7.2%. It appears to have been volatile at times and relatively static at other times.
• Current HV Percentile. At 35%, the current HV reading is roughly in line with the current IV percentile.

If a trader thinks IV and HV should follow each other up and down, an IV that's lower than HV might suggest IV is understating the stock's potential price change. An IV that's higher than HV might suggest the opposite. Comparing IV and HV might potentially be a useful way to understand how much expected volatility is being priced into options versus how much it actually tends to materialize. In general, higher IV relative to HV potentially suggests options are expensive, while lower IV potentially suggests options are inexpensive. When comparing these statistics, it's important to remember that past performance might not reflect future results.

Some strategies, such as buying single-leg options and vertical spreads² or calendar spreads³, are often considered more attractive in a low-vol environment. Other strategies, such as covered calls⁴, cash-secured puts⁵, and short vertical spreads, might be considered more attractive in a high-vol environment.
 

The Sizzle Index⁶ is a measure of what's sometimes considered unusual options activity. The Sizzle Index represents a ratio of a stock's current volume and its average daily volume (ADV) over the last five trading sessions. A Sizzle Index reading greater than 1.0 implies that current volume is greater than it's been over the last five days. A reading below 1.0 implies the opposite. The further the measure is from 1.0, the more it has deviated from its daily average. A sizzle of 4.0 indicates volume four times its average, while a sizzle of 0.5 indicates volume of half its average.

Tracking unusual options volume can offer traders hints as to the strength of a directional move. For example, a spike in the Sizzle Index during a big up or down move in the stock price could potentially indicate strength in the direction. Conversely, a big move on low volume might potentially suggest a lack of conviction in the stock move and might even signal a reversal of the prevailing trend.

It's important to note that there are separate sizzle readings for calls and puts. A look at where the unusual options activity is occurring might hint at market sentiment or where the key price levels might be based on the options trades generating the volume.

The put/call (P/C) ratios are often considered among the oldest and most recognizable options statistics. One such ratio is determined by the total put volume divided by the total call volume during the same period. If the volume of calls and puts is the same, the ratio would be 1.0. If twice as many calls traded as puts, it'd be 0.5. If puts had twice the volume of calls, the ratio would be 2.0.

The assumption is that the ratio implies a directional bias. Higher put volume (such as a P/C ratio above 1.0) would imply bearish sentiment, while higher call volume would imply bullish sentiment. However, while this is a relatively common assumption, options volume doesn't always indicate directional bias in the markets.

Like the volatility and sizzle stats, the P/C ratio can be used in conjunction with other indicators to provide more context. Many traders who use technical analysis might use options stats along with moving averages, breakouts, or other chart tools (see image below).

Even a longer-term trader who follows fundamental indicators, such as company financials or macroeconomic data, might consider following the options action. Implied and historical volatility, the Sizzle Index, and the put/call ratio can potentially offer signals that traders can use to determine whether a trend may be reversing.