Tracking institutional flow bridges the information gap between retail traders and institutions.
By monitoring where institutions position their capital, we can leverage their insights to anticipate and catch major market moves before they happen.
These institutional trades represent the extensive hours of research poured in by institutions before placing that trade.
However, it’s important to note that you will never know the game plan behind these institutional orders – are institutions actually expecting upside or is it just merely hedging?
As such, we need a checklist to sift through the noise and determine which institutional flow is actually worth noting.
| Positive Factors | Description |
|---|---|
| Significant premium size relative to company’s market cap | For a mega cap stock like NVDA, $1 million would be a non-event. In comparison, $1 million would be extremely significant for a tiny cap stock like $BBAI. |
| Consistent institutional flow | When we have consistent, non-stop flow with big premium sizes, we can see a clear trend developing towards a stock or sector. We should take note as there may be pending news or an indication that the stock is on the cusp of a larger move. |
| Far OTM calls | Generally, far OTM calls with sizeable premiums are a sign that institutions are looking for a large move from that stock. Conversely, small premiums spent on far OTM calls usually indicate routine hedging. It’s possible that institutions may sometimes buy cheap, far OTM calls just to flip for a quick profit before they go ITM. |
| Short DTE for quicker upside | Use the duration of the DTE to guide the timeframe of your own trade. If an institution buys a LEAP, one shouldn’t expect the trade to play out immediately. Ideally, short DTE with a sizeable premium is what we’d like to see. |
To sum it up: Far OTM, short DTE, sizeable premium calls and consistent institutional flow is our golden ticket here.
In Practice
We can see that TSLA and NBIS are seeing consistent flow with a respective net score of 8 and 4, so we can monitor these stocks for a potential upside.
We see a massive 854k premium call order on NBIS with a far OTM strike price of 12%. This is noteworthy.
On the chart, we can see that NBIS is currently breaking out technically.
A few days later, NBIS released news that it has achieved industry leading AI training performance, and the stock ran up 36% thereafter.
I must reiterate that data analysis must positively align with both fundamental and technical analysis to provide the highest probability bet.
If the fundamentals do not align with my own perspective and the chart looks technically unsound, I would personally refrain from placing a trade based purely off data analysis.
Tan's Notes 