What net premium measures
Net premium is the dollar value of option contracts traded aggressively by buyers minus the dollar value traded aggressively by sellers, over some window. Positive net call premium is read as demand for upside; positive net put premium as demand for downside protection or a bearish bet.
It is one of the most widely quoted figures in retail options flow, and one of the most widely over-read, because the split it depends on is not something the tape actually reports.
Where the buy/sell split comes from
Trade prints do not carry a buyer or seller flag. The consolidated tape records that a contract traded, at a price, in a size, at a time. It does not record who initiated.
So every platform publishing net premium infers the side, almost always by comparing the fill price against the prevailing quote:
- Filled at or above the ask: counted as buyer-initiated.
- Filled at or below the bid: counted as seller-initiated.
- Filled between: counted as neutral, split, or discarded, depending on the platform.
This is a reasonable heuristic and it is the standard one. It is also wrong a meaningful fraction of the time. Options quotes are wide and they move fast; a fill that looks like it hit the ask may have crossed a quote that had already moved. In illiquid strikes the quote may be stale enough that the classification is close to arbitrary.
The number is therefore an estimate built on an estimate: an inferred side, aggregated into a dollar total.
The spread problem
The deeper issue is that net premium treats every trade as a standalone directional bet, and most institutional option trades are not.
Consider a trader putting on a call spread, buying the 7,700 call and selling the 7,800. Both legs print. The bought leg lands at the ask and adds to net call premium; the sold leg lands at the bid and subtracts. If the legs are different sizes, or if one leg is more liquid and fills differently, the residual shows up as directional flow that nobody intended.
Now consider the same trader buying calls purely to hedge a short position elsewhere. The print is identical to a bullish speculation. Nothing distinguishes them.
Multi-leg structures, rolls of expiring positions, delta hedges against other assets and closing trades on positions opened weeks ago all print into the same stream. Net premium counts all of them as fresh directional conviction.
What it is still good for
None of this makes the figure useless. It makes it a measure of gross activity and its skew, rather than a measure of collective opinion.
Two readings survive the objections above:
Relative, not absolute. Today's net premium in a name compared with its own recent range is far more informative than the raw dollar figure. A number three standard deviations outside the usual distribution is unusual regardless of how the sides were classified, because the classification error is roughly constant. Our free options flow view shows the per-contract estimated premium those aggregates are built from, which is the level at which a misclassification is still visible.
Persistence over magnitude. A single session's skew has too many innocent explanations. The same skew, same direction, across several sessions, is harder to attribute to one desk's spread legs, each additional day needs its own explanation.
How it relates to open interest
The cleanest cross-check is the next morning's open interest. Net premium describes what traded; open interest describes what was still held at settlement.
Heavy net call premium followed by a large rise in call open interest at those strikes is consistent with positions being opened. The same premium with flat or falling open interest suggests the activity was closing existing positions, the opposite interpretation from the same flow data.
That check costs one extra look and eliminates a large share of the false readings.