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 Made $1,048,110 Betting That Microsoft Corporation (NASDAQ: MSFT) Will Stay Bearish For The Next One Week
On Tuesday, January 26, 2021, a “smart money” trader seems to have bought 4,110 of the 05-Feb-21 $255.00 call options on MSFT for $1.15 per share. Her outlay was $472,650 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 4,002 of the 05-Feb-21 $240.00 call options on MSFT for $3.80 per share, which is an inflow of $1,520,760. Her total inflow for this Bear Call Spread Strategy was $1,048,110.
MSFT – Bear Call Spread Options Strategy
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 stock would not cross above $240.00 until 05-Feb-2021. MSFT’s last close was $232.90.
Trade #2: Trader Just Bet $4,632,000 That Twitter Inc. (NYSE: TWTR) Will Have a Significant Move in Either Direction in 7 Weeks.
On Tuesday, January 26, 2021, a “smart money” trader seems to have bought 4,000 of the 19-Mar-21 $55.00 call options on TWTR for $3.24 per share. His outlay was $1,296,000 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 4,000 of the 19-Mar-21 $55.00 put options on TWTR for $8.34 per share, which is an outlay of $3,336,000. His total outlay for this Long Straddle Strategy was $4,632,000.
TWTR – Long Straddle Options Strategy
TWTR will need to rise to $66.58 for the call option trade to break even — around an 38% return from the current price of $48.19. And then for every $1 the stock rises above $66.58, our “smart money” trader will make $400,000!
TWTR will need to decline to $43.42 for the put option trade to break even — around a 10% return from the current price of $48.19. And then for every $1 the stock decreases below $43.42, our “smart money” trader will make $400,000!
He seems to be anticipating the underlying stock to have a significant move in either direction within the next 7 weeks.
Trade #3: Trader Just Bet $266,240 That Workhorse Group Inc. (NASDAQ: WKHS) Will Rise 15% in 3 Weeks.
On Tuesday, January 26, 2021, a “smart money” trader seems to have bought 512 of the 19-Feb-21 $25.00 call options on WKHS for $7.84 per share. Her outlay was $401,408 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 512 of the 19-Feb-21 $40.00 call options on WKHS for $2.64 per share, which is an inflow of $135,168. Her total outlay for this Bull Call Spread Strategy was $266,240.
WKHS – Bull Call Spread Options Strategy
WKHS needed to rise to $30.20 for the call option trade to break even. Then, for every $1 the stock rises above $30.20, our “smart money” trader will make $51,200!
She seems to be anticipating the underlying stock to surge until $40.00, which is a nearly 15% return from the current price of $34.80.
Trade #4: Trader Just Bet $3,765,000 That Advanced Micro Devices, Inc. (NASDAQ: AMD) Will Have a Significant Move in Either Direction in 7 Weeks.
On Wednesday, January 27, 2021, a “smart money” trader seems to have bought 2,500 of the 19-Mar-21 $90.00 call options on AMD for $8.23 per share. His outlay was $2,057,500 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 2,500 of the 19-Mar-21 $90.00 put options on AMD for $6.83 per share, which is an outlay of $1,707,500. His total outlay for this Long Straddle Strategy was $3,765,000.
AMD – Long Straddle Options Strategy
AMD will need to rise to $105.06 for the call option trade to break even — around an 18% return from the current price of $88.84. And then for every $1 the stock rises above $105.06, our “smart money” trader will make $250,000!
AMD will need to decline to $74.94 for the put option trade to break even — around a 16% return from the current price of $88.84. And then for every $1 the stock decreases below $74.94, 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 4 weeks.
Trade #5: Trader Just Bet That Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN (BATS: VXX) Will Rise 73% in 7 Weeks.
On Wednesday, January 27, 2021, a “smart money” trader seems to have bought 5,000 of the 19-Mar-21 $30.00 call options on VXX for $1.47 per share. Her outlay was $735,000 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 6,500 of the 19-Mar-21 $35.00 call options on VXX for $1.15 per share, which is an inflow of $747,500. Her total inflow for this Bull Call Spread Strategy was $12,500.
VXX – Bull Call Spread Options Strategy
VXX needs to rise to around $30.32 for the call option trade to break even — around a 49% return from the current price of $20.25. Then, for every $1 the stock rises above $30.32, our “smart money” trader will make $500,000!
She seems to be anticipating the underlying stock to surge until $35.00, which is a nearly 73% return from the current price of $20.25.
Happy Trading!
— Trades of The Day Research Team