Mastercard Incorporated (NYSE: MA) – Understanding Mastercard Unusual Options Activity


Thursday, the actions of MasterCard (NYSE: MA) saw unusual activity on options. After the option alert, the stock price fell to $ 369.2.

  • Feeling: KISS
  • Option type: TRADE
  • Type of business: APPEL
  • Expiry date: 2021-08-20
  • Exercise price: $ 405.00
  • Volume: 454
  • Open interest: 287

Three signs of unusual options activity

Unusually large volume (compared to historical averages) is one reason why options market activity can be considered unusual. Option activity volume refers to the number of contracts traded over a period of time. The number of unsettled contracts that have been traded, but not yet closed, is called open interest. These contracts are not yet closed because a buyer has not bought the contract or a seller has not sold it.

Another sign of unusual activity is negotiating a contract with an expiration date in the distant future. Typically, more time until a contract expires increases the possibility that it will hit its strike price and increases its time value. Time value is important in this context because it represents the difference between the strike price and the value of the underlying asset.

Out-of-the-money contracts are also indicative of unusual options activity. Out-of-the-money contracts occur when the underlying price is less than the strike price of a call option or greater than the strike price of a put option. These transactions are carried out with the expectation that the value of the underlying asset will change drastically in the future, and both buyers and sellers will benefit from a larger profit margin.

Understand the feeling

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

Although the activity is suggestive of these strategies, these observations are made without knowing the true intentions of the investor when purchasing these options contracts. An observer cannot be sure whether the bettor is playing the contract up front or whether he is hedging a large underlying position in a common stock. In the latter case, a large investor’s exposure to their short position in common stocks may be more significant than bullish options activity.

Use these option strategies

Unusual options activity is a profitable strategy that can greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain another tool for making an informed investment decision while taking into account other observations.

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