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’re launching 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: Trader Just Took In Substantial Risk And Bet That Carnival Corp (NYSE: CCL) Would Remain in a Range For The Next 7 Weeks.
On Tuesday, November 24, 2020, a “smart money” trader seems to have sold 2,500 of the 15-Jan-21 $25 call options on CCL for $0.92 per share. His inflow was $230,000 for these options. In what appears to be a Short Strangle strategy (wherein the investor simultaneously sells a call with a higher strike price and sells a put option with a lower strike price, both with the same expiration date), he also seems to have sold 2,500 of the 15-Jan-21 $15 put options on CCL for $0.57 per share, which is an inflow of $142,500. His total inflow for this Short Strangle strategy was $372,500.
CCL – Short Strangle Options Trade
Note that the Trader is anticipating CCL to trade between the range of $15 and $25 until the short strangle is held to expiration. This way, both options would expire worthlessly and he would get to keep the total premiums received (less commissions). The trader’s potential loss is substantial on the upside (above $25), as well as on the downside (below $15).
Trade #2: Trader Just Bet $4,067,850 That Exxon Mobil Corporation (NYSE: XOM) Will Rise 4% in 3 Weeks.
On Wednesday, November 25, 2020, a “smart money” trader seems to have bought 14,425 of the 18-Dec-20 $37.50 call options on XOM for $3.77 per share. Her outlay was $5,438,230 for these options. In what appears to be a Bull Call Spread Strategy (wherein the investor buys a call option at a lower strike price and sells a call option at a higher price but with the same expiry date), she also seems to have sold 14,425 of the 18-Dec-20 $42.50 call options on XOM for $0.95 per share, which is an inflow of $1,370,380. Her total outlay for this Bull Call Spread Strategy was $4,067,850.
XOM – Bull Call Spread Options Trade
XOM needed to rise to $40.32 for the call option trade to break even. Then, for every $1 the stock rises above $40.32, our “smart money” trader will make $1,442,500!
She seems to be anticipating the underlying stock to surge until $42.50, which is a nearly 4% return from the current price of $40.81.
Trade #3: Trader Just Bet $4,975,000 That Alibaba Group Holding Ltd – ADR (NYSE: BABA) Will Have a Significant Move in Either Direction in 3 Weeks.
On Monday, November 23, 2020, a “smart money” trader seems to have bought 2,500 of the 18-Dec-20 $270 call options on BABA for $9.45 per share. His outlay was $2,362,500 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 18-Dec-20 $270 put options on BABA for $10.45 per share, which is an outlay of $2,612,500. His total outlay for this Long Straddle Strategy was $4,975,000.
BABA – Long Straddle Options Trade
BABA will need to rise to $289.80 for the call option trade to break even — around a 4% return from the current price of $277.72. And then for every $1 the stock rises above $289.80, our “smart money” trader will make $250,000!
BABA will need to decline to $250.10 for the put option trade to break even — around a 10% return from the current price of $277.72. And then for every $1 the stock decreases below $250.10, our “smart money” trader will make $250,000!
He seems to be anticipating the underlying stock to have a significant move in either direction within the next 3 weeks.
Trade #4: Trader Just Bet $150,400 That Ford Motor Company (NYSE: F) Will Rise 10% in 7 Weeks.
On Tuesday, November 24, 2020, a “smart money” trader seems to have bought 3,200 of the 15-Jan-21 $9.00 call options on F for $0.78 per share. Her outlay was $249,600 for these options. In what appears to be a Bull Call Spread Strategy (wherein the investor buys a call option at a lower strike price and sells a call option at a higher price but with the same expiry date), she also seems to have sold 3,200 of the 15-Jan-21 $10.00 call options on F for $0.31 per share, which is an inflow of $99,200. Her total outlay for this Bull Call Spread Strategy was $150,400.
F – Bull Call Spread Options Trade
F needed to rise to $9.47 for the call option trade to break even — around a 4% return from the current price of $9.08. Then, for every $1 the stock rises above $9.47, our “smart money” trader will make $320,000!
She seems to be anticipating the underlying stock to surge until $10.00, which is a nearly 10% return from current prices.
Trade #5: Trader Just Bet That Salesforce.com, Inc. (NYSE: CRM) Would Remain in a Range For The Next 12 Weeks
On Wednesday, November 25, 2020, a “smart money” trader seems to have sold 700 of the 19-Feb-21 $280 call options on CRM for $8.53 per share. His inflow was $597,100 for these options. In what appears to be a Short Strangle strategy (wherein the investor simultaneously sells a call with a higher strike price and sells a put option with a lower strike price, both with the same expiration date), he seems to have sold 700 of the 19-Feb-21 $240 put options on CRM for $15.06 per share, which is an inflow of $1,054,200. In what appears to be a hedge, he also seems to have bought 19-Feb-21 $210 put options on CRM for $4.90 which is an outlay of $343,000. His total inflow for this Short Strangle Strategy with Hedge was $1,308,300.
CRM – Short Strangle With Hedge Options Trade
The Trader seems to be anticipating CRM to trade between the range of $240 and $280 until the short strangle is held to expiration. This way, both options would expire worthlessly and he would get to keep the total premiums received (less commissions). Even though the trader’s potential loss is substantial on the upside (above $280), it is limited to until $210 on the downside (below $240) due to the hedge.
Happy Trading!
— Trades of The Day Research Team