Guide to Options Sweeps

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

An options sweep is a large trade split into smaller orders and executed rapidly across multiple exchanges. These trades are typically placed by institutional investors to capitalize on perceived price movements in the markets.

While retail investors rarely place sweep orders themselves, watching for this type of unusual options activity may offer clues about institutional sentiment. Sweeps prioritize speed over price, and are seen as more aggressive trades that have high urgency.

What Are Options Sweeps?

Options sweeps are large options trades broken into smaller orders and executed by well-capitalized, typically institutional investors, across multiple exchanges at the best available order prices. The executing broker routes the order across multiple exchanges, filling it in the order of best available prices until the target trade size is met. (Note that SoFi does not execute options sweeps for traders at this time.)

The typical retail investor will not execute options sweep trades, given the large amount of funding and leverage they require. Instead, these options trades can serve as an indicator of underlying interest around a certain security. As they typically reflect institutional investor activity, sweep trades may reflect directional interest in a given stock.

What an options sweep implies is up to interpretation and depends on the order size, type of option, and average price at which the options sweep was executed. Understanding how options sweeps work may help retail investors interpret market activity.

How Do Options Sweeps Work?

When options sweeps are executed, the trade may be visible to market participants. The details around the trade, namely its size, the type of option traded, and the approximate price of the trade, are viewable by traders with the capability to scan for them. However, the specific entity entering the trade and the order type (whether it’s a buy or sell) will not be disclosed.

Option sweeps aren’t really considered one of the strategies for trading options. But given the massive amount of capital needed to properly transact an options sweep, and the fact that these are typically entered as block trades, entities that use option sweeps are likely to be well-capitalized institutional investors.

Consequently, options sweeps are sometimes viewed as indicators of aggressive trades that reflect conviction. This can stir up investor interest due to the perceived informational edge that institutional managers may have over retail investors, who may just be learning to trade options.

Under the right circumstances, they can provide useful insight into implied short-term price swings that large institutional investors might be hedging against. This can make them a popular tool for short-term traders.

How to Interpret Options Sweeps

Options sweeps serve as indicators of unusual options activity surrounding the underlying investment.

Options trades may imply aggressive actions by institutional investors, and traders who detect options sweeps may use them to inform their actions.

How an options sweep should be interpreted depends on the type of option being traded, its expiration date (American- and European-style options are different), and the price near where the options sweep was executed.

Regardless of what an options sweep may suggest, investors should bear in mind that institutional investors are fallible. In other words, sometimes the “smart money” isn’t so smart. Despite the perceived informational asymmetry, option sweeps should be interpreted cautiously. Investors should conduct independent research and review multiple indicators before acting on options sweep activity.

Option Type

When a trader buys to open a call option, this generally implies a bullish bet on the price of a security, as call options offer upside potential beyond the stated strike price.

Conversely, when a trader buys to open a put option, this implies a bearish bet on the direction of the underlying security, as put options offer downside protection beyond the stated strike price.

Price

While it’s evident that a trade was made when an options sweep occurs, the trade won’t explicitly disclose whether the options were bought or sold by the institutional investor.

To gauge whether or not an options sweep was a buy or sell order, and to better understand options pricing, traders can contextualize based on whether the average execution price was traded “near the bid,” or “near the ask.”

Trades made near the bid are typically sell orders, while trades near the ask are typically buy orders. This follows the traditional trading logic of “sell at the bid” and “buy at the ask.”

Combination Trades

Not all option trades are simply buy calls or buy puts. Combination trade strategies using multiple options are very common. It might be very difficult to interpret the strategy of the option sweep investor, and even more difficult to determine if your own investing strategy aligns.

How to Detect Options Sweeps

Options sweeps are difficult to detect without the aid of dedicated trade scanners that monitor options flow activity.

Some third-parties and brokerage accounts that offer advanced trading capabilities may include this as part of a subscription fee, or as a part of their trading suite. (This service is not provided by SoFi currently.)

If you don’t have access to these paid programs, there are still ways to detect unusual options activity on stocks you follow.

First, options are useful hedging tools for institutional investors and are therefore often used during times of heightened market volatility.

You can watch for open options interest on calls and puts, expiring close to earnings reports or dividend announcements. Beyond company-specific announcements, traders can often gauge options interest close to market-moving events, economic reports, or even Federal Reserve statements.

While this won’t necessarily inform the direction of an upcoming trade, it could certainly shed some light on where trading volatility is likely to occur as the expiration date on the options approach.

Who Uses Options Sweeps

Options sweeps are used almost exclusively by large well-capitalized institutional traders.

Due to the large amount of capital needed to execute an options sweep, and the massive risk profile that this entails, it’s unlikely that anyone without a substantially large bankroll would be able to conduct an options sweep trade.

The complexity of these trades means retail investors are typically not able to execute options sweeps.

The Takeaway

While options sweeps are not usually executable by everyday investors, their existence still serves as a useful indicator of institutional activity.

Unusual options activity has historically been a popular short-term metric for gauging the direction of stocks. Although options sweeps don’t guarantee price moves, they may offer insight into short-term sentiment and serve as one of several tools used by options traders.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

FAQ

Are call sweeps considered bullish?

Call option sweeps are large purchases or sales of call options that can be considered either bullish or bearish, depending on the price where the trade completes.

All options trades have both a bid and an ask price; the bid price indicates the price you’d receive for selling to open the option while the ask price indicates the price you’d pay to buy to open the option.

If a call sweep is shown executing near the bid price, it may suggest that an institutional trader sold a large number of call options at the bid price, which could imply a bearish signal.

Conversely, if a call sweep is shown executing near the ask price, that indicates that an institutional trader likely purchased a large number of call options at the ask price, which could imply a bullish signal.

How can you find options sweeps?

Finding options sweeps isn’t as simple as searching for individual trades. Detecting option sweeps requires scanning software that can sleuth through public trade data for unusual options activity.

There are a number of options activity scanners available online or through third-party information services; in most cases, these require paid subscriptions.

Many popular online brokerage accounts also offer activity scanners as part of their advanced trading platforms.

What does it mean for a sweep to be near the ask?

If a sweep is near the ask, it generally indicates that a large sweep order was made to trade securities near the ask price.

This may be interpreted as a “bullish” signal that the stock price may rise in the short term.

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Photo credit: iStock/Drazen Zigic

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