Options trading has grown in popularity and usage by retail traders. Understanding what the options chain is signaling and being able to see in real-time how the options sentiment is changing is a must-have for traders. Yet, many amateur traders don’t know how to read an options chain or have access to real-time options flow information. Prospero makes it easy by taking all this information and condensing it into a simple-to-understand signal … the Net Options Sentiment signal.

What is Net Options Sentiment?

A short-term signal that quantifies the direction and extent institutions are betting on a stock or ETF based mostly on pricing dynamics in the options market. Large institutions, like hedge funds and banks, are a big part of the options market and have an outsized impact on this signal. By following their moves, investors gain an understanding of how the price of a stock or ETF could move.

How to Use Net Options Sentiment

Net Options Sentiment has powerful signaling capabilities on important indices like the Top 100 Tech stocks (QQQ) and the S&P 500 (SPY), what is often referred to as “the market”. It has also proven instrumental in Prospero.ai’s weekly newsletter stock picks, which beat the market in 2022 and 2023 by ~50% in 2022 and 2023 and 80% through the end of Q3 24.

Net Options Sentiment ranges from 0 to 100 and can be examined for a certain stock or for an aggregation of stocks such as ETFs. (See which ETFs we cover).

• A high Net Options Sentiment rating (80+) indicates more bets by institutions that price will rise.
• A low Net Options Sentiment (20 or less) indicates more bets by institutions that price will fall.
• A Net Options Sentiment rating of 50 shows the market is less aligned and more divided over the future price.

Investors can combine Net Options Sentiment with other metrics to more accurately predict price fluctuations. Here are some examples:

• Less Risk of Stock Price Going Down = High Net Options Sentiment + High Upside Breakout + High Net Institutional Flow + Low Downside Breakout
• More Risk of Stock Price Going Down = Net Options Sentiment + Low Upside Breakout + Low Net Institutional Flow + High Downside Breakout

However, for some stocks, like Meme Stocks, it can be harder to separate out retail and institutional pricing behavior. To increase your success rate, consider other metrics like Institutional Flow, Upside Breakout, or Downside Breakout.

Update Frequency and Usage for Net Options Sentiment

Net Options Sentiment updates every 2-5 minutes. This is one of the most important short term signals. It is a great signal to understand how the market views a stock in the short term and can fluctuate widely even in a single day. It is a fantastic tool to increase your success rate for entry and exit as you can be confident it is reflective of the current feelings of the market. As short term investing is inherently risky, and this particular signal changes frequently, you’ll want to keep an eye on it when considering a trade.

Learn more about stock indices here.

Learn more about options here.