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 Bet $6,123,000 That iShares MSCI Emerging Markets ETF (NYSE: EEM) Will Have a Significant Move in Either Direction in 1 Week.
On Monday, December 7, 2020, a “smart money” trader seems to have bought 13,000 of the 18-Dec-20 $55.00 call options on EEM for $0.03 per share. His outlay was $39,000 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 13,000 of the 18-Dec-20 $55.00 put options on EEM for $4.68 per share, which is an outlay of $6,084,000. His total outlay for this Long Straddle Strategy was $6,123,000.
EEM – Long Straddle Options Trade
EEM will need to rise to $59.71 for the call option trade to break even — around an 18% return from the current price of $50.43. And then for every $1 the stock rises above $59.71, our “smart money” trader will make $1,300,000!
EEM will need to decline to $50.29 for the put option trade to break even. And then for every $1 the stock decreases below $50.29, our “smart money” trader will make $1,300,000!
He seems to be anticipating the underlying stock to have a significant move in either direction within the next week.
Trade #2: Trader Just Made $100,000 Betting That Energy Select Sector SPDR Fund (NYSE: XLE) Will Stay Bearish For The Next 5 Weeks.
On Monday, December 7, 2020, a “smart money” trader seems to have bought 5,000 of the 15-Jan-21 $47.00 call options on XLE for $0.24 per share. Her outlay was $120,000 for these options. In what appears to be a Bear call spread Strategy (wherein the investor buys a call option with a higher strike price and sells a call option with a lower strike price, but with the same expiry date), she also seems to have sold 5,000 of the 15-Jan-21 $45.00 call options on XLE for $0.44 per share, which is an inflow of $220,000. Her total inflow for this Bear Call Spread Strategy was $100,000.
XLE – Bear Call Spread Options Trade
A Bear Call Spread strategy is typically used to generate premium income based on a trader’s bearish view of a stock or index. She seems to be anticipating that the price of the underlying ETF would not cross above $45.00 until 15-Jan-2021. XLE’s last price was $40.36.
Trade #3: Trader Just Bet $5,250,000 That Virgin Galactic Holdings Inc. (NYSE: SPCE) Will Have a Significant Move in Either Direction in 5 Weeks
On Tuesday, December 8, 2020, a “smart money” trader seems to have bought 5,000 of the 15-Jan-21 $35.00 call options on SPCE for $4.25 per share. His outlay was $ 2,125,000 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 5,000 of the 15-Jan-21 $35.00 put options on SPCE for $6.25 per share, which is an outlay of $3,125,000. His total outlay for this Long Straddle Strategy was $5,250,000.
SPCE – Long Straddle Options Trade
SPCE will need to rise to $45.50 for the call option trade to break even — around a 42% return from the current price of $32.13. And then for every $1 the stock rises above $45.50, our “smart money” trader will make $500,000!
SPCE will need to decline to $24.50 for the put option trade to break even — around a 24% return from the current price of $32.13. And then for every $1 the stock decreases below $24.50, our “smart money” trader will make $500,000!
He seems to be anticipating the underlying stock to have a significant move in either direction within the next 5 weeks.
Trade #4: Trader Just Bet $539,886 That AT&T Inc. (NYSE: T) Will Rise 2% in One Week
On Wednesday, December 9, 2020, a “smart money” trader seems to have bought 4,029 of the 18-Dec-20 $30.00 call options on T for $1.74 per share. Her outlay was $701,046 for these options. In what appears to be a Bull Call Spread Strategy (wherein the investor buys a call option with a lower strike price and sells a call option with a higher strike price but with the same expiry date), she also seems to have sold 4,029 of the 18-Dec-20 $32.00 call options on T for $0.40 per share, which is an inflow of $161,160. Her total outlay for this Bull Call Spread Strategy was $539,886.
AT&T- Bull Call Spread Options Trade
AT&T needed to rise to $31.34 for the call option trade to break even. Then, for every $1 the stock rises above $31.34, our “smart money” trader will make $402,900!
She seems to be anticipating the underlying stock to surge until $32, which is a nearly 2% return from the current price of $31.46.
Trade #5: Trader Just Bet $4,170,380 That iShares iBoxx $ High Yield Corporate Bond ETF (NYSE: HYG) Will Decline 4% in 1 Week
On Wednesday, December 9, 2020, a “smart money” trader seems to have bought 112,713 of the 31-Dec-20 $86.00 put options on for $0.50 per share. His outlay was $ 5,635,650 for these options. In what appears to be a Bear Put Spread Strategy (wherein the investor buys a put option with a higher strike price and sells a put option with a lower strike price but with the same expiry date), he also seems to have sold 112,713 of the 31-Dec-20 $83.00 put options on HYG for $0.13 per share, which is an inflow of $1,465,270. His total outlay for this Bear Put Spread Strategy was $4,170,380.
HYG – Bear Put Spread Options Trade
HYG needed to decline to $85.63 for the put option trade to break even. Then, for every $1 the ETF moves below $85.63, our “smart money” trader will make $11,271,300! It may be noted that the trader’s profit will be limited till the price of $83.00 as he had sold the $83 strike price put options.
He seems to be anticipating the underlying stock to decline until $83.00, which is a nearly 4% return from the current price of $86.61.
Happy Trading!
— Trades of The Day Research Team