I analyzed over 5000 "option flow" trades so you don't need to waste money on the scammy services
I am really sick of people shilling option flow services as though they mean anything. Actually, they do mean something, but these people are not there to guide you but to take your money by blasting thousands of trades at you every day, leaving you confused and not knowing what hit you, let alone how you can use the information to make money with it.
I took more than 5400 call option trades from 2024, from 3 random M-W-F in each of the months, and I analyzed them with a single question in mind: do these trades carry information that is private to the trader and is not yet reflected in the stock price, and if so, how often do these call options end up in the money and or profitable at expiration?
Here is a breakout by delta, and you can see that the win percentage underperforms delta by a little but it tracks pretty closely. The main point being - only 27% of these trades are winners and a whopping 63% are losing trades.
Here is a breakout that is similar to delta but is my moneyness, i.e. the relationship of the stock price at the time of the trade to the option strike:
And finally, here is a breakout by trade size, so there is an uptick in the correlation between trade size and win %, but it is still really low.
While the frequency is telling a pretty pathetic story, there is a model where fundamental and technical factors can be added to these trades, and while the probability of each trade is not much different, that subset contains large winning trades that outweigh the small and more frequent losses. In addition, there are ways to trade this subset that is not as simple as buying the single options, so that even if no large move ensues, the trader at least recuperates some of the premium.
That is a topic for another post though, because the point of this post is that just blasting thousands of trade records at retail traders is useless, confusing and misleading and the only ones making money with it are the scammy service providers, while retail traders are losing money on random losing trades and the subscriptions to boot.
I hope you find this informative, and that you stay away from the shills peddling "option flow" "smart money" and other scammy alert services.
Cheers!
EDIT: here is the table by "side" meaning if the trade was opened at the ask, bid or mid, and it is meaningless, but people are clueless and lead to believe that trades at the ask have meaning - they do not.
