TL;DR: Started tracking big money options flow on mid-caps back in August because I kept seeing posts about it and thought it was straightforward. It was not. First couple months I was basically break even. Ended up journaling literally every trade with notes on what I would of done differently, and after about 20 trades I started noticing patterns in which ones hit vs which ones just bled out. The filters I converged on are pretty specific and I'll walk through all of them with reasoning and my actual trade logs. 54 winners, 23 losers, biggest drawdown was about 11%.
So if you're not familiar, basically every time a big order hits the options market (think $50K+ in premium on a single trade), platforms will flag it as an "alert." The idea is that institutions and funds leave footprints when they place large bets, and if you can read those footprints correctly you can ride the same wave.
The problem is that a huge chunk of those big orders are just hedges. Some fund owns 5 million shares of something and buys puts as insurance, they're not actually bearish they literally own the stock. If you follow that without understanding the context you're basically betting against their actual position.
Before going live I paper traded for about 2 months. HIGHLY RECOMMEND for first timers. It trained me to trade emotionlessly and not chase that extra 5% since the money wasn't real. When I switched to real money that mindset kinda carried over.
Below is the process I found working after 9 months (2 paper, 7 real).
Disclaimer: None of this is financial advice, just thought I'd contribute since I've been lurking here for so long.
Strategy
Mid caps only. Big caps like AAPL or MSFT get an insane amount of hits or flow everyday so differentiating real bets from the regular hedges is way too hard. A $500K order on Apple is nothing. That same $500K on a $3B company is a pretty loud signal. Small caps under $1B are too sketchy, low liquidity, pump and dump territory.
Premium > $30K. Anything below that isn't significant enough to predict direction on a mid cap stock.
IV rank above 80%. IV rank compares today's implied volatility to where it's been over the past year. A rank of 80 means the stock's current IV is higher than 80% of days in the last year, so for that specific stock this is an unusually high expectation of movement. Options get expensive when IV rank is high which sucks if you're buying options, but I'm buying the actual stock. So high IV rank just tells me the stock is primed to move more than usual.
70%+ bullish flow. Coupling this with high IV is really the core of the setup. The market is betting the stock will move, and most people, smart money and retail, are betting in the same direction.
Vol/OI ratio under 0.5. Open interest is how many positions exist on a specific contract. Volume is how many opened today. A ratio under 0.5 means we're looking at signals that have been building for a couple days, not just a random bet in the air. Higher conviction.
DTE 15-60 days. This one I just kinda figured works but don't exactly know why. My best guess is that in this window the options are still sensitive to price moves, so when someone places a big bet there they probably expect something to happen soon. If someone smarter than me has a better explanation I'm genuinely curious but I went with what the data showed me.
After the initial scan I do a quick news check on each candidate. Boring but it's saved me multiple times. Earnings coming up in the next week, FDA decisions, pending lawsuits or SEC stuff. If a stock has any of those I skip it entirely no matter how good the flow looks. These events are not quantitative and don't fit this strategy.
Trade execution: Entry at tomorrow's open, take profit at +7%. If it hasn't hit within 5 trading days I close it wherever it is. The 5 day window is basically my stop loss. I tested a traditional stop at -5% and it actually made things worse because a lot of these mid cap names dip 6-7% intraday then recover by day 3 or 4. A hard stop would have kicked me out of winners. With the time limit, most losers naturally ended up in the -3% to -7% range anyway.
Position Sizing & Risk
The $10K I started with is a fraction of what I have in ETFs and boring long term holds. It's money I set aside to experiment with and was fully prepared to lose, which I think actually helped me trade better. For sizing I messed around during paper trading. 10% felt too slow, 50% made the drawdowns way too stressful even on paper. Settled on 35% per trade and it ended up being the sweet spot where winners moved the needle but a bad streak wouldn't blow things up.
Results
77 trades over 7 months. 54 winners, 23 losers. 70% win rate. Started at $10K, currently sitting at around $22K. The biggest drawdown was about 11% which happened in January when AXTI decided to dump 31% on me in a week. That one hurt but the position sizing kept it manageable.
Going forward
This entire 7 month stretch has basically been one market regime. Generally bullish with some pullbacks but nothing catastrophic. With everything going on with Iran right now I'm being way more cautious with sizing going into the next few months. Not stopping, just dialing it back.
Wednesday entries crushed it at 85% win rate, Tuesdays were terrible at 25%. Could be a real pattern, could be noise over 77 trades. I'm not confident enough to make it a hard rule yet but I definitely pay more attention when a signal lines up on a Wednesday now.
I also want to look into incorporating gamma exposure data as an additional filter. From what I've read, positive gamma environments tend to supress volatility which could help confirm whether the setup has a floor under it or not. Haven't tested it yet but its on the list.
End Note
If you're interested, I have a full trade journal with all 77 trades in a google doc. Every trade I took, entry price, IV rank, all the stats and how each one played out.
Not gonna drop links here since I don't want the mods to nuke this post, but if you want any of it just ask in the comments and I'll send it over. Will also drop them in the comments directly if the mods are cool with it.
7 months of journaling every options trade I took following institutional flow. $10K to $22k
byu/Prudent_Comfort_9089 inoptions
Posted by Prudent_Comfort_9089