How the Sizzle Index Tracks Options Activity

Whether or not you're deep into calls and puts in your own portfolio, simply tracking options volume can be an important part of a trading kit. Learn how the Sizzle Index, available on the thinkorswim^® trading platform, can help traders find, filter, refine, and monitor stocks experiencing unusual options activity.

Options volume is best viewed in the context of other indicators. For instance, a jump in volume that coincides with a big up or down price move may indicate strength in the direction of the change. It's fitting, then, that large percentage price increases accompanied by thin trading volume are less likely to indicate market direction with any staying power. In fact, they may indicate a reversal is taking shape.

When tracking options volume, traders want to discern whether the crowd is taking action—buying or selling—in call options as well as put options. It's also important to be able to track down unusual options volume when it occurs because it could hint at where the underlying stock might go.

So, how can traders get a little volume temperature reading? The Sizzle Index on thinkorswim is an indicator for screening stocks posting unusual options volume compared to their recent draw.

The Sizzle Index is a ratio of a security's current options volume over that security's daily average options volume over the last five days. It is calculated as the ratio of the current total volume of put and call options to the arithmetic mean of daily put and call volumes over the last five days. A stock with a Sizzle Index of 5.00, for example, indicates its current daily options volume is five times that of its daily average options volume. A Sizzle Index of 0.50 indicates current volume at half of its average, and so on.

Think of it as an unusual options activity scanner that allows traders to follow the money in a given stock and helps troll for potential trading ideas. And because it's impossible to keep tabs on all stocks all the time, the Sizzle Index "quick scan" does the heavy lifting to identify unusually high values. Use it to quickly get a condensed roundup of, in this case, the unusual suspects to keep an eye on.

Using the Sizzle Index as a personal scanning device for unusual options activity can be done in four steps: scan, compare, refine, and save. Before getting into the specifics, become familiar with the Stock Hacker screen, located on the Scan tab on the thinkorswim desktop platform (see image below).

On the thinkorswim platform's Scan > Stock Hacker tab, select the flame at the top right that represents the Sizzle Index. This will prefill the Stock Hacker with the parameters to find the securities with a per-share price above $5, volume above 100,000 shares, and market cap above $35 million that have the most unusual options volume. To edit these parameters, use the sliders or text entry boxes. When all looks good, select Scan.

The results show the top 10 "sizzling" securities measured by how many times their options volume is beating the volume of the past five days. By default, three stock scan filters are added in the template: minimum last price, minimum volume, and minimum market capitalization. If necessary, modify or add more filters to the scan by selecting Add filter above the filters area.

Use Stock Hacker under the Scan tab to further refine the sizzle list. For instance, if looking only at stocks trading under $20 per share, select Add Filter > Fundamental. For the filter, select Last and under min, select $0 and under max, select $20. Then hit the Scan button.

Want to increase your results? Select Show to increase the number of stocks on the Sizzle Index.

Now it's time to create either a static or a dynamic watchlist. A static watchlist takes a snapshot of securities that currently meet your scan criteria and saves them. Go to the right side of the screen on the Search Results ribbon and select Save As Watchlist to create and name a static watchlist. A dynamic watchlist will periodically refresh, running the scan criteria against current market activity and updating the list with new securities that meet those criteria.

You can either save as a watchlist or set an alert as the sizzle changes.

One final note on the Sizzle Index: It doesn't need to be scanned in order to be seen.

The Sizzle Index can be added as a column to any watchlist on the thinkorswim desktop platform to gauge the level of activity in a security's options.

You can also see it while looking at a specific option chain. Head over to All Products under Today's Options Statistics.

Either location offers call- and put-specific Sizzle Indexes to view options activity for just one side of the chain.