Explanation:
When multiple big trades hit the same strike/expiration around the same time.
😎 Pro Tip: Clusters = stronger signal than one-off trades. Institutions often split orders.
Rule of Thumb: Follow clusters over single trades—they usually show real conviction.
A cluster trade happens when multiple large option trades hit the same strike and expiration around the same time.
Instead of one big order, institutions often split trades into chunks (for execution efficiency and to avoid moving markets). To us, it looks like a “cluster” of trades hitting together.
Why do traders care?
● Stronger conviction signal. A cluster shows that big players are piling into the same idea.
● Not just noise. One big trade could be random or a hedge. A cluster is harder to ignore.
● Reveals positioning. Clusters often precede big stock/index moves.
How to spot it (quick tells)
● Several trades with same ticker, strike, and expiration, executed close together.
● Typically large notional sizes (hundreds of thousands or millions).
● Often appear as sweeps (urgency).
● Can be across multiple exchanges (same time window).
Interpreting the intent
● Bullish cluster: multiple call sweeps at ask.
● Bearish cluster: multiple put sweeps at ask.
● Mixed cluster: could be hedging, but still signals heightened activity.
Rules of thumb
● “One trade is a shout, a cluster is a roar.”
● Clusters > single trades for reliability.
● If the cluster matches market sentiment → higher conviction.
● If a cluster appears in illiquid names → could move the stock more dramatically.
Practical playbook
● Directional follow: If you see a cluster of bullish trades aligned with sentiment, consider a smaller mirrored play.
● Event check: If cluster shows up before earnings/Fed/data, it might be hedging → size down.
● Risk management: Don’t blindly copy clusters — confirm with price action.
Quick checklist (Cluster Trade Scan)
● Multiple trades, same strike & expiration?
● Large notional?
● Ask (bullish) or bid (bearish)?
● Clustered in time?
● Aligns with broader flows/sentiment?