What is Options Flow?
Options flow is the real-time stream of option trades printed on the tape — sized, tagged by aggressor (buyer or seller), and aggregated to reveal who is doing what.
Definition
Options flow is the equivalent of the tape for the options market: every trade that prints, with its size, price, time, strike, expiry and a label of whether it was buyer-initiated or seller-initiated. Aggregated and filtered, flow tells you in near real-time where institutional money is positioning: which strikes are being accumulated, what skew is being bid, where the convexity is being bought. Flow is the raw input that feeds dealer-positioning models — without it, GEX numbers are a static snapshot rather than a live forecast. "Following the flow" can mean several things: tracking unusual block trades, watching for sweeps (large orders that take out multiple price levels), or simply reading net premium spent / received per expiry as a sentiment proxy.
Why it matters & how it's calculated
Tagging a trade as buy vs sell requires inference — the tape doesn't come with a label. Standard methods include the "tick rule" (trade above last = buy, below = sell), the "quote rule" (closer to ask = buy, closer to bid = sell), and the more sophisticated Lee-Ready algorithm. Block trades and complex spread legs require additional logic to attribute correctly. Flow is most informative when filtered and contextualised: a 10,000-lot block at the offer in a normally quiet far-OTM strike is signal; a constant stream of retail 1-lots near ATM is noise. On a vol desk, the flow filters that matter are: (1) sweeps in unusually high IV strikes (informed call buyers ahead of news), (2) large skew-direction trades (risk-reversals, ratio spreads), (3) volume in expiries that aren't the obvious month (informed hedgers), and (4) post-print follow-through (does spot move with the flow, validating it). Flow without context is just noise; flow with proper positioning context is one of the cleanest information edges on the planet.
Worked example
SPX 5,100 calls 2 weeks out: average volume 5,000/day. Today, 80,000 trade in the first hour — 70% at the offer, 60% in blocks of >500 lots. That is signal: institutional money is positioning long upside. The dealer-positioning model updates: dealers are now significantly more short upside than yesterday's baseline. Expected behaviour: if SPX rallies into 5,100, dealer-hedging buying accelerates the move. If it fades, dealers unload long stock — fade can be sharp.
Related concepts
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