Price movements in the options market result from the decisions of millions of traders. But there are a number of useful statistics besides price movements that tell you what those other market participants are doing. Here we take a closer look at two factors you should consider when trading : daily trading volume and open interest. Trading does not occur in a vacuum. Visual CME Options Indicator show you what other market participants are doing. Daily trading volume and open interest can be used to find trading ideas you might otherwise overlook. Visual CME Options indicator is also useful for making sure that the your trading decision is right, allowing you easily to enter and exit a trade, as well as ensure you get the best possible price.

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We present strong evidence that option trading volume contains information about future price movements. Taking advantage of a unique dataset from the CME, we construct put-call ratios from option volume initiated by buyers to open new positions. On a risk-adjusted basis, market with low put-call ratios outperform markets with high put-call ratios by more than 40 basis points on the next day and more than 1% over the next week. Partitioning our option signals into components that are publicly and non-publicly observable, we find that the economic source of this predictability is non-public information possessed by option traders rather than market inefficiency. We also find greater predictability from option signals for currency and stocks with higher concentrations of informed traders and from option contracts with greater leverage.

Visual CME Options signals description 

Closing price indicators

• Closing price near or at high volume area; using value area for support or resistance.
• Closing price near or at low volume area; lack of conviction.
• High volume distribution above and below closing price; use for support and/or resistance areas.

Daily, Weekly and Monthly High/Low price indicators

• Day's trading range has a higher high; momentum bullish.
• Day's trading range has a lower low; bearish momentum.
• Day's trading range has a higher high and lower low; reversal day.
• High volume near high and/or low; establishing value area for momentum.
• Low volume near high and/or low; establishing rejection area.

Support / Resistance indicators

• Day's trading range uses the previous day, weekly and/or monthly high volume area for support or resistance; continuing its trend.
• Day's trading range uses the previous day, weekly and/or monthly low volume are for support or resistance; establishing new value area.
• Use the high volume distribution near pivot points, support and resistance market numbers for confirmation.

Daily Trading Volume

Trading volume gives you important insight into the strength of the current market direction for the option's underlying stock. The volume, or market breadth, is measured in shares and tells you how meaningful the price movement in the market is.

Keep in mind that trading volume is relative and needs to be compared to the average daily volume of the stock in question. A large percentage change in price accompanied by larger than normal volume is a solid indication of market strength in the direction of the change. But large percentage increases in price accompanied by small trading volumes are less likely to indicate a market direction. In fact, they may indicate that a reversal is likely in the near term.

The Importance of Open Interest

Open interest is a concept all option traders need to understand. Although it is always one of the data fields on most option quote displays - along with bid price, ask price, volume and implied volatility - many traders ignore open interest. But while it may be less important than the option's price, or even current volume, open interest provides useful information that should be considered when entering an option position.

First, let's look at exactly what open interest represents. Unlike stock trading, in which there is a fixed number of shares to be traded, option trading can involve the creation of a new option contract when a trade is placed. Open interest will tell you the total number of option contracts that are currently open - in other words, contracts that have been traded but not yet liquidated by either an offsetting trade or an exercise or assignment.

For example, say we look at Microsoft and open interest tells us that there have been 81,700 options opened for the March 27.5 call option. You may be wondering if that number refers to options bought or sold. The answer is that you have no way to know for sure.

When you buy or sell an option, the transaction needs to be entered as either an opening or a closing transaction. If you buy 10 of the Microsoft March 27.5 calls, you are buying the calls to 'open'. That purchase will add 10 to the open interest figure. If you wanted to get out of the position, you would sell those same options to 'close' and open interest would then fall by 10.

Selling an option can also add to the open interest. If you owned 1,000 shares of Microsoft and wanted to do a covered call by selling 10 of the March 27.5 calls, you would be entering a sale to open. Since it is an opening transaction, it would add 10 to the open interest. If you later wanted to repurchase the options, you would enter a transaction to buy to close. Open interest would then decrease by 10.

Things get a little more complicated if the options you trade are not created by the transaction, but instead the other side is taken by someone doing a closing transaction. For example, if you are buying 10 of the Microsoft March 27.5 calls to open, and you are matched with someone that is selling 10 of the Microsoft March 27.5 calls to close, then the total open interest number will not change.

So when you are looking at the total open interest of an option, there is no way of knowing whether the options were bought or sold - which is probably why many option traders ignore open interest altogether. However, you shouldn't assume that the open interest figure provides no important information.

One way to use open interest is to look at it relative to the volume of contracts traded. When the volume exceeds the existing open interest on a given day, this suggests that trading in that option was exceptionally high that day. Open interest can help you determine whether there is unusually high or low volume for any particular option.

Open interest also gives you key information regarding the liquidity of an option. If there is no open interest for an option, there is no secondary market for that option. When options have large open interest, it means they have a large number of buyers and sellers, and an active secondary market will increase the odds of getting option orders filled at good prices. So, all other things being equal, the bigger the open interest, the easier it will be to trade that option at a reasonable spread between the bid and ask. 

The Visual CME Options indicator provides users with:

• Easy Graphical User Interface (GUI).
• Possibility for day-trading and long-term trade.
• Prognosis on whether next period would be favorable for trade or not.
• Use of color to determine price movement probability and favorable periods for trade from unfavorable once.

Visual CME Options Advantages

• Watch the markets 24 hours for you
• Eliminates greed and fear from trading
• Works on standard and mini accounts
• One time buy – no monthly fees
• No additional costs for updates

Easy to use

Open the "Scripts" folder From the "Navigator" panel and attach the script "Visual CME Options" to an arbitrary chart (by a right click / "Execute on Chart", Drag and Drop or a double click).

Easy to install
Just run setup.exe click the "Install" button, and after an installation process, click "Finish".