BlackBox is continually innovating new ways to help our members profit. Recently released features including a Dollar Flow study, Historical Volume and Open Interest, Options Sentiment, and receiving alerts on charts, are four such examples. These are new tools to help you make more data-informed trades and they are all very powerful; however, let’s dive right into the first of our newest studies available for our proprietary charts only accessible through our stock and options trading platform: the Dollar Flow Study.
WHAT IS DOLLAR FLOW?
This is a new full-featured options dollar flow study that shows traders, at a glance and by ticker, various points of interest regarding where the big institutional money is deploying their capital. Once a trader understands what its information represents, its value becomes clear.
This study is built into the BlackBox platform, and there are various ways traders can utilize it to inform trade theses. As all our studies are, it is very easy to add to your charts on our charting platform. So, what is it?
The study consists of three dotted lines added to your chosen chart in pink, yellow, and blue. The blue line is a representation of all the opened and closed options contracts transacted in your chosen ticker today in any contract that is dated thirty days or less. Bear in mind that this information only includes single-leg calls and puts; multi-leg trades are not included. On the left side of the screen, the net amount is shown in a tab corresponding to the blue color of the line. This number denotes the total dollar flow amount, in real time, of the options traded with expiration dates thirty days or less from now.
While some choose to avoid or even eschew, trading Zero Days-To-Expiration options, many of our traders often take advantage of the risk/reward and leverage of 0DTEs. The yellow line is the same information for options expiring in a week or less. This is the line that is most relevant to intraday traders who may prefer scalping as their preferred trading style. This provides a shorter term view of the effect Dollar Flow might have on underlying price action.
The final line is pink, and it represents all contracts from today to the farthest dated ones of all. It represents a total amount of dollar flow for all contracts purchased or sold today dated from this day forward.
It is important to have all three of these lines and the data they represent. Some of our competitors only provide one time-frame line of data, and we believe all three are needed. This is because you will see different reactions in different time-frames based on options flow coming through.
For example, if a ticker is undergoing stable, more or less sideways, price action and all three dollar flow lines are generally trending upward, this can be a bullish indicator for price action. The pink line, remember, represents all flow dated from today until eternity. Therefore, if there is a sudden drastic drop in the pink line, this results from longer term options being closed out that are dated for longer than a week (yellow line) or a month (blue line). The shorter term dollar flow may remain strong, but if all three begin to trend downward then shorter term options dollar flow is losing value. This can be a way to speculate on price direction. Similarly, if the price is relatively flat and the yellow and blue lines start showing upward momentum, often the underlying price will react in a similar manner. A divergence between short term price action and the short-term yellow and blue lines can indicate price action will soon follow the direction of the increasing (or decreasing) dollar flow. Of course no indicator or study is absolute; however, this can be an additional weapon to add to your arsenal to help you track which way the big institutional money is deploying its money. For short term traders, even a one or two candle head start can result in big gains.
Consider this image and how the Dollar Flow information it contains might be interpreted:
This is a one-minute chart of the QQQ ETF for June 8, 2022, with one-minute candles spanning from 11:30 to the close. After consolidating and chopping around for the first ninety minutes, price action started trending down. The three Dollar Flow lines are all present on the chart. Two things between 11:40 and noon are relevant. Notice that around 11:40, a notable decrease in the blue line began just before a price-action step down. Remember that the yellow line is total dollar flow dated a week or less, the blue is total dollar flow dated a month or less, and pink is total dollar flow for the ticker. Yellow and blue are much more relevant for short-term price action.
So imagine you began a synthetic short position with a starter put position based on the drop in the blue dollar flow line. How can the Dollar Flow help you stay in the trade longer with more data informing your decision to take profit or to add to and hold the position?
Note that just after noon, the long term pink line shot up considerably and held its new level of never less than positive 19 million dollars. This is a drastic increase in dollar flow dated longer than one month out. Keep in mind that since the pink is longer term dollar flow (it could be massive LEAPs positions opened, for instance) it is not as useful or relevant for an intraday trade as the yellow and blue lines (specifically the yellow are. In fact, the yellow and blue stayed strongly negative for the remainder of the day, and this could have helped a trader maintain a short position, perhaps adding to it during that long price action drop in the chart. And sure enough, price action fell nicely after that and stayed down.
So what is to be made of the sharp vertical increase in the pink line? Remember, this is the totality of dollar flow of options bought today dated longer than one month. Therefore, the big increase in the pink line might very well predict rising underlying price action in the future, so if a trader chose to swing this position, they should be very aware of the looming pink increase as a possible prelude to a bounce.
But when? That is always the thousand-dollar question.
If the pink line stays elevated over the next trading session or sessions, the thing to watch would be an uptick in the blue and yellow lines as well. A situation where all three lines are sharply headed up while price action remains stable could very well serve as a nice data point to help be on top of price action changes. Remember that the intent of your trade changes how you read the dollar flow. If you are short term intraday or swing trading, the yellow and blue lines are the most important.
Dollar flow is a powerful tool if a trader understands what it represents and how to use it. As all studies, it should not be used in isolation and we encourage all our traders to take a look at it and see if it might fit in with their trading style and strategy.
ALERTS ON CHARTS
One of the core features of our platform are the alerts. Throughout the day, members receive these alerts when key things happen. Alerts include the Rapid Decline alert. This triggers when a ticker’s price loses an abnormal amount of value in a short time. There are also, for instance, Price Spike, Volume Active, Pre-Market alerts and more. On our desktop platform and within our app, members can easily configure the alert notifications they recieve.
Now members will see the alerts directly on our charts. Consider the AAPL chart below.
At 1:08, AAPL received an alert. You can see it is clearly visible in the form of the white C in the green circle. Upon clicking on the alert, the chart displays the following:
This is our Repeater Bullish Flow. It tells which strike and expiration received this alert. The Repeater Bullish denotes heavy, repeated buying in a particular contract, in this case the 6/24 140c. This alert, along with the rest of them, has been available to our members via the alert system and alert stream for a long time. However, the visual representation of it makes it much more convenient to observe and possibly act upon.
Another new feature showcasing our charts is option sentiment. This feature lets members see options sentiment by strike direction on the chart in our platform. This is accomplished by showing current volume data for both calls and puts on the chart. When someone pulls up the QQQ chart and applies the Option Sentiment study to the chat, they see this information:
Utilizing different colored bar graphs (orange for calls and purple for puts), volume data for each strike is available at a glance. To get this information, typically a trader has to open the option chain and scroll to it. Depending on the broker and platform, this can be a process that takes one’s attention from the price action on the chart. Having it organized this way is a game changer, and if someone is in a quickly moving intraday trade, this information being easily available is very worthwhile. But what are we seeing here?
This tells us that the option sentiment for the 277 strike is pretty balanced with a call volume of 46,887 and the put volume of 54,794. The sentiment for this particular strike of the QQQ ticker at this point in time is slightly bearish. Often, the differences will be more striking. For example, the sentiment for the 275 strike is heavily bearish. This is noticeable at a brief glance due to the visual outlay of the data via the bar graph.
HISTORICAL VOLUME AND OPEN INTEREST
An important piece of information for a swing and flow trader is open interest. If a trader followed a whale into trade based on flow, it behooves him to track the open interest daily in order to see if the big buyer is still in the trade. This has been, historically, difficult to locate and track if one doesn’t update it every day. The new historical volume and open interest solves this problem, and more.
A new icon has been added to the lines of flow. You can see it on the far right of this graphic:
If a trader is interested in historical volume and open interest for this particular AMZN 102 put, she can click on the new icon and this will appear:
This is one of our most interesting additions, so let’s unpack what we see here.
First, see the rows and columns to the right of the graphic. The date begins with today and goes backward, as it is historical. The second column is open interest, and we see that today the OI is 60,112. You can also see that it has been steadily increasing since June 7th. Having this historical open interest that is easily available is just about unprecedented. The price of this particular option at close is also available in the “close” column. The last column (underlying open/close) is also vastly easier to decipher than pulling up a daily chart and tracking the price backward. And, the same information is presented visually in the chart to the left of the graphic. Historical data has generally been difficult to locate, and this information will greatly benefit flow traders specifically.
We hope you use and find value in these four powerful new additions. Explore these new features, and see what they can do for your trading!