Digital World Acquisition Corp (NASDAQ: DWAC) is having a strong day Wednesday, up 7.5% in afternoon trading. Trading over 9.6 million shares today, the stock is well above its 10-day average of 5.5 million shares.
The real data point to be watching is the options market, with over 80,000 options traded on the day, posting over 62,000 calls and 18,000 puts (image below).
What Happened: While there are no known news catalysts for DWAC, it doesn’t really matter as option traders have gorged on calls today, with over 77% of al the options on the day being calls, which is heavily bullish.
The 80,000-plus options is strong considering the total OI (open interest) prior to trading Wednesday was around 243,000 options. This means today’s 80,000-plus options represent approximately 32% of the total open interest, all in one day!
Why It Matters: Any time a stock trades 10% or more of its total open interest, it suggests a strong focus on the stock from option traders.
Hence, moving over 30% of the total options in one day suggests a heavy concentration on the stock from option traders today.
What’s Next: About half of the total option flows today are short-dated, expiring Friday. On top of this, well over 40% of the total open interest is expiring Friday.
This should create an increase in volatility heading into the op-ex (option expiry) Friday. Monday should be volatile, as the option board will reset this weekend.
Hence, traders can look for potential long volatility plays to start next week. Considering the majority of options expiring Friday are calls, this might lead to the current bull trend weakening as we get late into trading on Thursday and Friday.
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