What if you could mimic the moves of some of the best-informed traders on the planet? That’s the idea behind a new series we recently launched that’s focused on what we’ll call “smart money” option trades.
In short, we’re using Market Chameleon to scan the options market for unusual activity and identifying some of the most interesting mega trades – relatively large volume options trades we can potentially mimic… but on a smaller scale!
While we can’t be 100% certain of the exact options strategies our “smart money” traders are employing on these trades, these are our best guesses based on the information we do have.
That said, here are 5 of the most interesting “smart money” trades we came across in the past week.
Trade #1: Traders Just Bet $3,420,000 that iShares iBoxx $ Inv Grade Corporate Bond ETF (NYSEARCA: LQD) is Going Up.
On Tuesday, November 17, 2020, a “smart money” trader seems to have bought 20,000 of the 19-Mar-21 $140 call options on LQD for $0.83 per share. Her outlay was $1,660,000.
LQD will need to rise to $140.83 for the call option trade to break even — a 3% return from the current price of $136.93. And then our “smart money” trader will make $2,000,000 for every $1 the stock rises above $140.83!
On Wednesday, November 18, 2020, another “smart money” trader seems to have bought 20,000 of the 19-Mar-21 $140 call options on LQD for $0.88 per share. His outlay was $1,760,000.
LQD will need to rise to $140.88 for the call option trade to break even — which again, is a 3% return from the current price of $136.93. And then our “smart money” trader will make $2,000,000 for every $1 the stock rises above $140.88!
Trade #2: Trader Just Bet $21,456,000 That Boeing Co (NYSE: BA) Will Have a Significant Move in Either Direction in 9 Weeks.
On Tuesday, November 17, 2020, a “smart money” trader seems to have bought 6,000 of the 15-Jan-21 $200 call options on BA for $22.38 per share. His outlay was $13,428,000 for these options.
In what appears to be a Long Straddle Strategy (wherein the investor simultaneously purchases a call option and a put option on the same underlying asset with the same expiration date and strike price), he also seems to have bought 6,000 of the 15-Jan-21 $200 put options on BA for $13.38 per share, which is an outlay of $8,028,000. His total outlay for this Long Straddle Strategy was $21,456,000.
BA will need to rise to $235.76 for the call option trade to break even — around a 16% return from the current price of $203.30. And then for every $1 the stock rises above $235.76, our “smart money” trader will make $600,000!
BA will need to decline to $167.54 for the put option trade to break even — around an 18% drop from the current price of $203.30. And then for every $1 the stock decreases below $167.54, our “smart money” trader will make $600,000!
He seems to be anticipating the underlying stock to have a significant move in either direction within the next 9 weeks.
Trade #3: This Veteran Trader Just Executed a Complex Options Strategy and Bet That Target Corporation (NYSE: TGT) Will Rise 8% in ONE Week.
On Wednesday, November 18, 2020, a seasoned “smart money” trader seems to have sold 399 of the 27-Nov-20 $180 put options on TGT for $14.00 per share. Her inflow was $558,600 for these options.
In what appears to be a Long Calendar Put Spread Strategy (wherein the trader simultaneously sells and buys a put option with the same strike price, but the put she buys will have a later expiration date than the put she sells), she also seems to have bought 399 of the 04-Dec-20 $180 put options on TGT for $14.22 per share, which is an outlay of $567,378. Her total outlay for this Long Calendar Put Spread Strategy was $8,778.
Note that the trader is taking advantage of accelerating time decay on the shorter-term put, which means that the strategy is about the time value.
TGT will need to rise to almost $180 in the next week so that the trader can buy back the 27-Nov-20 $180 put options for next to nothing – a nearly 8% return from the current price of $166.85. And then our “smart money” trader will get to keep the $558,600 she had received when selling the 27-Nov-20 $180 put options.
She could either continue to hold the 04-Dec-20 $180 put options until expiry and get unlimited profits in case the stock price declines. Alternatively, she could cover the 04-Dec-20 $180 put options on TGT and possibly incur losses there, but this loss would be limited due to the time value.
Trade #4: Traders Just Bet $133,510 That Palantir Technologies Inc. (NYSE: PLTR) Will Rise at Least 13% in 9 Weeks.
On Wednesday, November 18, 2020, a “smart money” trader (Trader A) seems to have bought 574 of the 15-Jan-21 $19 call options on PLTR for $2.95 per share. His outlay was $169,330 for these options.
In what appears to be a Bull Spread Strategy (wherein the trader buys an option at a lower strike price and sells one at a higher price but with the same expiry date), he also seems to have sold 574 of the 15-Jan-21 $24 call options on PLTR for $1.80 per share, which is an inflow of $103,320. His total outlay for this bull spread strategy was $66,010.
On Wednesday, November 18, 2020, another “smart money” trader (Trader B) seems to have bought 500 of the 15-Jan-21 $19 call options on PLTR for $3.50 per share. Her outlay was $175,000 for these options. In what appears to be a Bull Spread Strategy, she also seems to have sold 500 of the 15-Jan-21 $24 call options on PLTR for $2.15 per share, which is an inflow of $107,500. Her total outlay for this bull spread strategy was $67,500.
For Trader A, PLTR will need to rise to $20.15 for the call option trade to break even — around 13% return from the current price of $17.90. And then for every $1 the stock rises above $20.15, our “smart money” trader will make $57,400!
For Trader B, PLTR will need to rise to $20.35 for the call option trade to break even — around a 14% return from the current price of $17.90. And then for every $1 the stock rises above $20.35, our “smart money” trader will make $50,000!
Trade #5: Trader Just Bet $2,912,500 That DraftKings Inc. (NASDAQ: DKNG) Will Have a Significant Move in Either Direction in 9 Weeks.
On Wednesday, November 18, 2020, a “smart money” trader seems to have bought 2,500 of the 15-Jan-21 $45 call options on DKNG for $7.70 per share. Her outlay was $1,925,000 for these options.
In what appears to be a Long Straddle Strategy (wherein the trader simultaneously purchases a call option and a put option on the same underlying asset with the same expiration date and strike price), she also seems to have bought 2,500 of the 15-Jan-21 $45 put options on DKNG for $3.95 per share, which is an outlay of $987,500. Her total outlay for this Long Straddle Strategy was $2,912,500.
DKNG will need to rise to $56.65 for the call option trade to break even — around a 19% return from the current price of $47.68. And then for every $1 the stock rises above $56.65, our “smart money” trader will make $250,000!
DKNG will need to decline to $36.03 for the put option trade to break even — around a 24% drop from the current price of $47.68. And then for every $1 the stock decreases below $36.03, our “smart money” trader will make $600,000!
The trader seems to be anticipating the underlying stock to have a significant move in either direction within the next 9 weeks.
Happy Trading!
— Trades of The Day Research Team