AMC Entertainment (NYSE: AMC) shares experienced unusual options activity on Friday. The stock price moved down to $5.57 following the option alert.

• Sentiment: BEARISH
• Option Type: SWEEP
• Trade Type: CALL
• Expiration Date: 2020-09-25
• Strike Price: $6.00
• Volume: 2403
• Open Interest: 320

3 Ways Options Activity is ‘Unusual’

Extraordinarily large volume is one indication of unusual options activity. Volume refers to the total shares contracts traded in a day when discussing options activity. Contracts that have been traded, but not closed by a counter-party, are called open interest. A purchased contract cannot be considered closed until there exists both a buyer and seller for the option.

Another gauge of unusual options activity is a contract with an expiration date in the distant future. Additional time until a contract expires generally increases the potential for it to grow its time value and reach its strike price. It is important to consider time value because it represents the difference between the strike price and the value of the underlying asset.

Contracts with a strike price far from the underlying price are also considered unusual because they are defined as being “out of the money”. This occurs when the underlying price is under the strike price on a call option, or above the strike price on a put option. These trades are made because the underlying asset value is expected to change dramatically in the future, and the buyer or seller can take advantage of a greater profit margin.

Bullish and Bearish Sentiments

Options are “bullish” when a call is purchased at/near ask price or a put is sold at/near bid price. Options are “bearish” when a call is sold at/near bid price or a put is bought at/near ask price.

Although the activity is suggestive of these strategies, these observations are made without knowing the investor’s true intentions when purchasing these options contracts. An observer cannot be sure if the bettor is playing the contract outright or if they’re hedging a large underlying position in a common stock. For the latter case, the exposure a large investor has on their short position in common stock may be more meaningful than bullish options activity.

Using These Strategies to Trade Options

Unusual options activity is an advantageous strategy that may greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain as another tool to make an educated investment decision while taking other observations into account.

For more information to understand options alerts, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts