Options and Stocks Trading with Order flow:

What is Options Order flow?

Options order flow is the tracking of puts, calls, and share activity, by institutional investors (or “smart money”), to discern probable future moves/biases in a specific ticker, index, and/or ETF. Order flow is similar to ‘reading the tape’, which is a method used by stock traders to follow share volume/activity at the bid and ask. There are different skill levels of reading order flow, with a various number of platforms catering to each skill level and market (retail and institutional investors).

Since the rise in popularity of stock and options trading due to popular brokerages with user-friendly apps and platforms, retail traders have taken their portfolios back into their own hands. A few popular brokerages largely used today are:

  • Interactive Brokers
  • TD Ameritrade
  • Robinhood

In tandem, there has been an emergence of order flow programs tailored to retail investors, particularly options traders. With retail traders largely making their own investment decisions, they have been discovering the wonders of order flow by following smart money. Whether you are a day trader, swing trader, or long-term investor, the advantages of incorporating options order flow, for both options trading and share trading, are endless.

The Significance of Options Order flow:

There has been a significant increase in the integration of order flow analysis into retail investor portfolios over the last few years. The phrase ‘order flow’ has become synonymous with options trading, however, order flow can be used for following traditional ‘smart money’ share trades as well. For years, options order flow has been utilized heavily by institutional investors, even superseding technical analysis, and becoming their primary trading tool. This fact is shocking to many retail investors, as retail tends to be heavily reliant on technical analysis. So, with that being said, why do institutional investors rely so heavily on order flow?

When smart money is ‘flowing’, this can indicate that the stock is going to move, likely due to a catalyst. The trick is to ‘drown out the noise’ and know which trades to follow, and which trades to ignore. Institutional investors are professionals at drowning out the noise and predicting future price action. This is due to being able to read order flow at a high skill level. They can decipher which trades are material, likely executed by other institutions, and which trades are likely being executed by speculative retail traders. By being able to read order flow at the same level as an institutional trader, you too can learn how to decipher which trades are material, possibly due to industry knowledge, for example, and which trades are retail speculation.

Let us look at an example.


The above chart shows TSLA’s range-bound price action from November 2nd, until November 16th, and then its subsequent breakout after the S&P Inclusion news broke.

On Monday, November 16, 2020, Tesla Motors (TSLA) had been trading sideways for two weeks straight and was yet again a quiet range-bound stock from open until close. However, behind the scenes, a lot of activity was happening. TSLA tends to have a lot of retail noise due to its popularity amongst retail investors. This time, however, institutions were also getting their piece of the pie, which was obvious to those who knew how to read ‘between the lines.’

There was an interesting order that caught my eye on this day.:

  • 104,890 TSLA puts were bought at the ask with a December 20th expiry. This was particularly suspicious– the strike, the premium paid, the number of contracts purchased, the Greeks, and the implied volatility of the put contracts.
  • Strike Price – The strike for this order was $20, while TSLA was range-bound bouncing between $400 and $415 the previous week. These were way ‘out of the money’ puts, which indicates that this position is a hedge to a bullish share position.
  • Premium – The premium paid was relatively cheap for an institution; 0.02 per contract, or $209,780 in total premium. This order was also connected to 1400 shares, purchased for $406.81 per share, totaling $569,534. Shares have a Delta of 1, meaning that aside from spending more on shares than puts, this institutional trader was long Delta, which indicated that they expected a bullish move.
  • Greeks – The Greeks were all at 0 for the puts purchased, meaning that they were 100% long shares and that 1400 shares were not Delta hedging a short position (additionally, the appropriate Delta hedging amount would’ve been 515-516 shares).
  • Implied Volatility – What really caught my eye was the Implied Volatility of the put contracts. Implied volatility typically ranges anywhere between 30-40% to 100%, or just over. These TSLA put’s had implied volatility for a December expiry at 225%, indicating a large move between the date of the put contract expiry, and the date they were purchased (it’s important to note that implied volatility does not forecast a directional bias, just the magnitude of the expected move.

This information combined paints a full picture – these puts were purchased to hedge a large, long position (due to the size and quantity of contracts), just in case TSLA did not behave the way this trader predicted.

can i make a living trading options

The image above is from TRADEPRO Academy’s order flow Twitter page TRADEPRO flow (@tradeproflow), specializing in pointing out unusual options activity.

What Happened Next?

  • It was later revealed on Monday evening, after market close, that TSLA would be finally joining the S&P 500 Index, which was long-awaited news with the bullish sentiment. TSLA rallied to $465 per share after hours, from its closing price of $408.09 per share.
  • If you were a trader who solely or primarily relied on technical analysis, it would have been more difficult to identify a move of this magnitude coming.
  • Based on technical analysis, TSLA was in consolidation, indicating a breakout to the upside or downside, at some point. However, order flow is what indicated the magnitude of the move, the timeline, and the bias of the move.

 Order flow Tools

There are many order flow programs available to retail investors. A few of my favorites are:

  • Cheddar Flow
  • Flow Algo
  • Quant Data

The image above is a screenshot of the order flow platform Flow Algo.

All three are very user friendly and are reasonably priced. All three of these programs are great for day trading and identifying the following types of trades:

  • Sweeps – Large orders across various exchanges, paying the market price. Sweeps indicate a sense of urgency to get into a position, and are considered aggressive and directional.
  • Splits – Like sweeps, splits are orders that are often broken down and executed into smaller orders, however, only on a single exchange. They are not considered as aggressive as sweep orders.
  • Block – A large privately negotiated order executed by institutions with major financial backing.
  • Dark pools – A large share trade executed on a private exchange that is not accessible to the public.

However, when it comes to heavier swing positions, I personally like to rely on Trade-Alert. Trade-Alert is the program heavily used by institutional investors due to its functionality and full visibility into option and share orders.

Trade Alert

Referring to the TSLA order flow example from earlier, that order was identified using Trade-Alert, and being able to read the order flow at a high level. Trade-Alert, however, has a steep learning curve and is not heavily geared towards retail. When deciding on which program to subscribe to, you’ll also have to decide what your trading style is (day trading, swing trading, long term investing) and to what level you’d like to take your order flow education.

The TRADEPRO Options and Stocks Order Flow Strategy:

What Securities to Trade?

Deciding which securities to trade using order flow can be tricky. It also depends on what kind of trader you are. When deciding on security using order flow as your primary source of information, you first need to come up with a trading plan.
If you’re looking for momentum plays, paying attention to repeat calls or puts, with weekly expires, indicate that these are short term holds, capitalizing on either daily volume on the ticker, chart set up, or pending news that will be released shortly.


The image above is of a screenshot of TradingView’s Stock Screener, focusing on the pre-market volume before the market open, to identify popular tickers that are likely to make moves throughout the trading day.

Also, day traders tend to stick to higher volatility tickers to capitalize on the ticker’s movement – a few to name:

  • TSLA
  • NIO

Small-Cap Stocks:

  • KNDI
  • BLNK
  • JMIA, etc.

For longer-dated swings and investments (LEAPS or shares), paying attention to long-dated, ‘in the money’ calls and puts are beneficial, as these contracts should have a higher premium, and a higher Delta, with little Gamma. This means that this contract will behave the most like owning the number of contracts, multiplied by 100, in share quantity.

How to Combine Order Flow with Technical Analysis

Despite institutional investors relying heavily on order flow analytics when researching a trade, many still combine order flow with technical analysis. I personally prefer to combine the two, giving me additional visibility and confirmation bias.

If you can read charts and order flow, that gives you an advantage over other traders, making you a double threat, and that much better of a trader.

For example, if we see repeat call sweeps coming in on AAPL, slightly ‘out of the money’, and the AAPL 15-minute chart has a bull flag, with a bullish RSI and MACD crossover, then we know that with volume, AAPL should have a small rally fairly soon, and the premium of those AAPL calls should increase.

AAPL stock options

The chart above is of AAPL on the 15-minute timeframe. At 10:00, there was a bullish crossover on the Stochastic RSI. Simultaneously, repeat call sweeps started coming in shortly before the bullish crossover (see below):

stock options trading signals

Risk Management 101

When practicing risk management for stocks and options trading, we always want to trade with a stop loss. Stop losses can always be mental as well if you stick to your trading plan. My personal day trading strategy is to cut losses at -10% to -15% with weekly expiries. When cashing in successful trades, I look to take anywhere between 20% to 40%. This of courses is all relative to daily volume and movement, and you can adjust your stop losses and profit taking goals accordingly. Additionally, we should also consider position sizing. At TRADEPRO Academy, we like to risk about 2-3% of the account for day trading. This means that if you are working with a $10,000 account, your position size will be $200 to $300 per trade. If you’re working with a $100,000 account, you should risk no more than $2,000 to $3,000 per trade.

Order flow can also be used to determine an institutional trader’s profit target. This gives us an idea of what our profit goal should be before entering a trade. Determining an option contract’s Delta, for example, can help us determine the trader’s objective. If the contract has a high Delta (for example, 0.80 Delta), then if we multiply the contract’s Delta by 100, that will give us the probability percentage of the trade is ‘in-the-money’ by the date of expiration. With this example, 0.80 x 100 = 80%. This means that this contract will have an 80% chance of being ‘in-the-money’ by the date of expiration. We can also look at Delta and Gamma, to determine a trader’s profit target (Gamma compounds on top of Delta giving your contract additional leverage).

However, if this contract loses value due to the underlying security moving in the opposite direction of your option’s contract, then your Delta will also lose value, and therefore, the probability of your option’s contract being ‘in-the-money’ by the date of expiration also decreases (this is due to your contract’s Theta).

This again is another important reason to exercise risk management when trading options and knowing when the probability of your trade’s objective is not being met.

How to Integrate Order Flow into your Trading Plan:

TradePro Academy has three extremely exciting additions coming for our TradePros:

  1. Upcoming Options and Stocks courses

  2. Upcoming Order Flow course

  3. TradePro Flow Twitter

TradePro Academy’s options course, stocks course, and order flow course will all be introduced to the TradePro community in January 2021. Our courses will provide traders the foundational knowledge and tools to find and execute profitable trades while practicing risk management. TradePro Academy’s order flow course will be a six-part module that will teach traders order flow analytics, designed for day traders, swing traders, and long-term investors. It will teach the basics of order flow, to reading order flow at the highest level using a more advanced order flow program such as Trade-Alert.

Additionally, for those who are unaware, TRADEPRO Academy has launched its own Twitter page tracking institutional order flow called “TRADEPRO Flow” (@tradeproflow). TRADEPRO Flow particularly focuses on unusual options activity, and ‘drowns out the noise’ by looking for trades executed by institutions only. It is a great tool to add to your trading toolbox, and for the time being, it is completely FREE!

By learning to read order flow and tracking smart money, you too can make smart money.

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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.