Historical Trading Patterns
Trading patterns analysis identifies recurring behaviors, volume anomalies, and systematic strategies in options markets. By studying historical patterns, traders can recognize institutional activity, predict future movements, and identify trading opportunities.
What Are Trading Patterns?
Trading patterns in options include:
- Volume Patterns: Regular or unusual trading activity
- Time-of-Day Patterns: When certain strategies appear
- Expiration Patterns: Pre-expiration positioning
- Spread Patterns: Multi-leg strategy identification
- Institutional Signatures: Recognizable trading behaviors
Pattern Types
Volume Patterns
Surge Patterns
- Sudden increase in volume at specific strikes
- Often precedes significant price movements
- Can indicate upcoming catalysts (earnings, events)
Accumulation Patterns
- Gradual volume increase over time
- Suggests building positions
- Often institutional in nature
Distribution Patterns
- Decreasing volume as positions unwind
- May signal end of trend or taking profits
- Can precede reversals
Strategic Patterns
Vertical Spreads
- Bull call spreads (optimistic)
- Bear put spreads (pessimistic)
- Defined risk strategies
Iron Condors/Butterflies
- Range-bound expectations
- Volatility selling strategies
- Often appear before earnings
Calendar Spreads
- Time decay strategies
- Volatility plays
- Different expiration targeting
Timing Patterns
Pre-Earnings Patterns
- IV typically rises
- Straddle/strangle buying increases
- Directional positioning appears
- Volume spikes in near-term expirations
Pre-Expiration Patterns
- Gamma concentration at-the-money
- Price pinning toward max pain
- Position rolling increases
- Volume shifts to next expiration
Intraday Patterns
- Opening surge (9:30-10:00 AM)
- Mid-day lull (12:00-1:00 PM)
- Closing surge (3:00-4:00 PM)
- Post-market activity
Chart Components
Volume Metrics
- Total Volume: Overall trading activity
- Call vs Put Volume: Directional bias
- Volume/OI Ratio: New vs existing positions
- Large Trade Count: Institutional activity
Pattern Indicators
- Pattern Type: Spread, naked, combination
- Sentiment: Bullish, bearish, neutral
- Size Classification: Small, medium, large, block
- Timing: Entry/exit patterns
Historical Analysis Use Cases
Identifying Institutional Activity
Characteristics:
- Large, consistent position building
- Strategic strike selection
- Often early in expiration cycle
- Spread structures for risk management
Trading Application:
- Follow smart money into positions
- Understand institutional thesis
- Anticipate hedging flows
- Identify conviction levels
Pre-Event Positioning
What to Look For:
- Unusual volume increases
- IV expansion
- Specific strike clustering
- Directional bias shifts
Trading Application:
- Position before the crowd
- Understand expected move
- Plan exit strategies
- Manage risk around events
Recurring Patterns
Monthly Expiration:
- Gamma pinning on expiration Friday
- Position rolling prior to expiration
- Delta hedging flows
Quarterly Patterns:
- Earnings season volatility
- Index rebalancing effects
- Dividend-related strategies
Seasonal Patterns:
- Tax-loss harvesting (December)
- January effect
- Summer doldrums
Pattern Recognition Techniques
Volume Spike Analysis
- Identify baseline volume (30-day average)
- Flag volume > 2x baseline as unusual
- Analyze strike distribution for bias
- Check timing for catalyst correlation
Flow Divergence
- Price up, call volume down: Potential reversal
- Price down, put volume down: Potential bounce
- Price flat, volume surge: Expecting big move
Multi-Leg Detection
- Simultaneous trades: Spread execution
- Strike relationships: Bull spread, bear spread, etc.
- Ratio patterns: Ratio spreads, backspreads
Best Practices
Pattern Validation
- Confirm with multiple timeframes
- Check volume confirmation
- Verify with price action
- Consider market context
False Pattern Avoidance
- One-off events aren’t patterns
- Low volume patterns less reliable
- Market conditions must be similar
- Confirm with fundamentals
Historical Pattern Analysis
- Test pattern reliability historically
- Measure win rate and profit factor
- Adjust for changing market conditions
- Document what works in different regimes
Advanced Applications
Dark Pool Cross-Reference
- Compare options patterns with dark pool prints
- Large stock prints often precede options activity
- Divergences may signal hedging
News Correlation
- Match volume spikes with news events
- Identify leaked information patterns
- Understand catalyst-driven patterns
Arbitrage Detection
- Put-call parity violations
- Box spread opportunities
- Conversion/reversal arbitrage
- Early exercise patterns
Integration with Other Analysis
Technical Analysis
- Confirm patterns with chart patterns
- Use support/resistance with strike clustering
- Volume confirms technical breakouts
Sentiment Indicators
- Put/call ratios validate patterns
- Extreme sentiment can signal reversals
- Contrarian patterns in extreme conditions
Fundamental Catalysts
- Earnings drive specific patterns
- M&A rumors create unusual activity
- FDA approvals in biotech
- Economic releases in indexes
Data and Metrics
Available Metrics:
- Volume by strike and expiration
- Volume/OI ratios
- Options trade history
- Trade size distribution
- Spread type classification
Historical Depth: 15+ years Update Frequency: Daily Subscription: Delta plan and higher
Trading Strategies Based on Patterns
Follow the Flow
- Identify large institutional trades
- Enter similar positions
- Set stops based on their levels
- Exit when they exit
Fade the Retail
- Identify retail-heavy patterns
- Take opposite positions
- Use extremes as contrarian signals
- Size smaller, manage risk
Event-Driven Trading
- Recognize pre-event patterns
- Position early in the pattern
- Define risk clearly
- Exit before event if pattern fails
Statistical Arbitrage
- Identify recurring patterns
- Verify historical edge
- Systematic entry/exit rules
- Risk management paramount
Common Patterns by Market Condition
Bull Market Patterns
- Call volume dominance
- Dip buying patterns
- Call spread structures
- Low put volume
Bear Market Patterns
- Put volume spikes
- Hedging activity increases
- Put spread popularity
- IV elevation
Range-Bound Market
- Iron condors increase
- Straddle selling
- Theta strategies
- Low directional volume
High Volatility Market
- Straddle/strangle buying
- Calendar spreads
- IV crush plays post-event
- Protection buying
Disclaimer: Past patterns don’t guarantee future results. Trading patterns should be one tool among many in your analysis. Always use proper risk management and never rely solely on pattern recognition.
