The Net Drift tool is one of many tools available on the Quant Data platform. To access the tool, you will want to log in to https://v3.quantdata.us and navigate to the Flow Analysis page under the Built-in Pages tab. The Net Drift tool allows you to see the net premium by sentiment in real-time for the market at large, sectors/industries, all individual symbols that trade options, and individual contracts.
What is Net Drift?
Net Drift tracks the cumulative premium and volume of all options traded in the U.S. Options Market. The chart can be broken down as follows:
Green Line: Net premium for all Calls based on the sentiment of each independent transaction. When the green line is above 0 (positive), it indicates that there is more Call buying than Call selling over that day, implying that the net Call activity carries a bullish sentiment. When the green line is below 0 (negative), it indicates more Call selling than call buying over that day, implying that the net Call activity carries a bearish sentiment.
Red Line: Net premium for all Puts based on the sentiment of each independent transaction. When the red line is above 0 (positive), it indicates that there is more Put buying than Put selling over that day, implying that the net Put activity carries a bearish sentiment. When the red line is below 0 (negative), it indicates that there is more Put selling than Put buying over that day, implying that the net Put activity carries a bullish sentiment.
Blue Line: The price of the underlying stock, ETF, or index being tracked.
Volume Subchart: Net volume for all Calls and Puts. If the line is green, it implies that there is net bullish volume between Calls and Puts, and if the line is red, it implies that there is net bearish volume between Calls and Puts.
In all instances described above, sentiment is determined based on where the trade executes within the bid-ask spread. If you are unfamiliar with this concept, I suggest reading this article here, which explains this concept in further detail.
Key Features and Customization
A big differentiator between Net Drift on Quant Data and tools on other platforms is the ability to dynamically filter and customize the Net Drift tool to your liking. Additionally, you can view the Net Drift data for historical days by using the date selector. Here are some of the different features on the Net Drift chart:
Filters: In addition to being able to filter by any sector, optionable ticker, or contract, users may also apply custom filters for contract details, greeks, moneyness, days until expiration, trade types, and many other filters. Using the dynamic filtering system, users can tailor the tool to exclude large strategy trades that may skew perceptions of overall market sentiment. We expand on this notion in the Tip below.
Confidence Bands: You can click the Confidence Bands button to display them on your chart. These bands display the trades that were not assigned a sentiment as a result of executing at the midpoint of the spread. These bands serve as a visual representation of the uncertainty around assigning sentiment. Here’s an example of what the Confidence Bands look like when applied:
Comprising Trades: You can click anywhere on the Net Drift chart to see the trades sorted by the largest premium in the one-minute window that is clicked. This functionality lets you see the details of the individual trades that make up any increase or decrease in activity on the chart. Here’s an example of what happens when you click somewhere on the chart:
Practical Application
Now that you have a complete understanding of the Net Drift tool and its capabilities, how can you use it?
Crosses in Activity: Users commonly look for crosses between the green (Call Activity) and red (Put Activity) lines to indicate that the sentiment is changing. In the example below, it’s apparent that Put buying is increasing and that Call selling is increasing. We know this because the red line is rising above 0, which is indicative of more ask-side Puts, and the green line is decreasing under 0, which is indicative of more bid-side Calls. We can further see that the bearish Put activity continues throughout the day, and subsequently, the underlying price of SPY drops.
Convergence/Divergence: Users may also use Net Drift to look for changes in the convergence/divergence between the Call (green line) and Put activity (red line). In the same example pictured below, we can see that as the Put line diverges (moves further away) from the Call line, the price of SPY accelerated further downward. As the net bearish activity moves further away from the bullish activity, the sentiment becomes increasingly bearish. Similarly, as the Bullish and Bearish activity converges (moves closer), it might be indicative of the move in the underlying slowing down, with the potential for there to be a cross/change in sentiment.
Net Volume: In addition to the primary chart, users may use the volume subchart as additional confirmation when evaluating the Net Drift tool. Using the same example below, we can see that even though the green line crossed over the red line by a small margin, the volume did not turn bullish and did not confirm that cross, and one minute later, the Put buying accelerated.
Tip 💡
Contextual Understanding of Complex Trades: Often, spikes in activity on the Net Drift chart will result from multi-leg trades, which combine various options legs (Calls and Puts) to form complex strategies. These trades may not always be directional but may be structured to capitalize on different factors such as volatility or rates. Treating these multi-leg positions comprehensively rather than as isolated trades provides a clearer insight into the sentiment. In many cases, it may be prudent to apply the Complex Trades are Excluded filter (this can be done by clicking the filter icon in the tool header). This effectively removes the majority of these multi-leg trades from your chart. Removing the Complex Trades on the Net Drift tool could reduce the ambiguity from potentially non-directional trades.
Final Remarks
The Net Drift tool is one way to track and analyze market sentiment and patterns in the options flow. Whether dealing with simple directional trades or complex multi-leg strategies, Net Drift allows users to filter the flows that they want to see. As with all tools, no tool is perfect, and it’s important to remember that decisions should never be based on a single tool or dataset. Markets are influenced by many factors, and using a combination of resources can help make well-rounded decisions. This explanation is meant to provide insight, not financial advice, so always consider your own situation or consult with a professional before making any investment decisions.
Would you like further assistance?
If you have any questions or need further assistance, please don’t hesitate to reach out to the Quant Data team at support@quantdata.us or via our live chat located in the bottom right-hand corner of your screen. We are available on our live chat between 9:30 AM and 5:00 PM (eastern time), Monday through Friday.
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