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 $416,000 Betting That AMC Entertainment Holdings Inc. (NYSE: AMC) Will Stay Bearish for The Next 3 Weeks.
On Tuesday, February 23, 2021, a “smart money” trader seems to have bought 16,000 of the 19-Mar-21 $13.00 call options on AMC for $0.46 per share. His outlay was $736,000 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), he also seems to have sold 16,000 of the 19-Mar-21 $10.00 call options on AMC for $0.72 per share, which is an inflow of $1,152,000. His total inflow for this Bear Call Spread Strategy was $416,000.
AMC – 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. He seems to be anticipating that the price of the stock would not cross above $10.00 until 19-Mar-2021.
Trade #2: Trader Just Bet $3,120,000 That ARK Innovation ETF (NYSE: ARKK) Will Decline 18% in 3 Weeks
On Tuesday, February 23, 2021, a “smart money” trader seems to have bought 6,000 of the 19-Mar-21 $132.96 put options on ARKK for $9.10 per share. Her outlay was $5,460,000 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), she also seems to have sold 6,000 of the 19-Mar-21 $112.96 put options on ARKK for $3.90 per share, which is an inflow of $2,340,000. Her total outlay for this Bear Put Spread Strategy was $3,120,000.
ARKK – Bear Put Spread Options Strategy
ARKK needs to decline to $127.76 for the put option trade to break even – around a 7% return from the current price of $138.32. Then, for every $1 the ETF moves below $127.76, our “smart money” trader will make $600,000! It may be noted that the trader’s profit will be limited till the price of $112.96 as she had sold the $112.96 strike price put options.
She seems to be anticipating the underlying ETF to decline until $112.96, which is a nearly 18% return from the current price of $138.32.
Trade #3: Trader Just Made $50,000 Betting That General Electric Company (NYSE: GE) Will Stay Bearish for The Next 3 Weeks.
On Wednesday, February 23, 2021, a “smart money” trader seems to have bought 2,500 of the 19-Mar-21 $13.50 call options on GE for $0.43 per share. His outlay was $107,500 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), he also seems to have sold 2,500 of the 19-Mar-21 $13.00 call options on GE for $0.63 per share, which is an inflow of $157,500. His total inflow for this Bear Call Spread Strategy was $50,000.
GE – 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. He seems to be anticipating that the price of the stock would not cross above $13.00 until 19-Mar-2021.
Trade #4: Trader Just Bet $4,100,000 That Energy Select Sector SPDR Fund (NYSE: XLE) Will Have a Significant Move in Either Direction in 7 Months.
On Tuesday, February 23, 2021, a “smart money” trader seems to have bought 5,000 of the 17-Sep-21 $52.00 call options on XLE for $3.85 per share. Her outlay was $1,925,000 for these options. In what appears to be a Long Strangle Strategy (wherein the investor simultaneously buys an out-of-the-money call and an out-of-the-money put option with the same expiration date), she also seems to have bought 5,000 of the 17-Sep-21 $45.00 put options on XLE for $4.35 per share, which is an outlay of $2,175,000. Her total outlay for this long strangle strategy was $4,100,000.
XLE – Long Strangle Options Strategy
XLE will need to rise to $60.20 for the call option trade to break even — around a 20% return from the current price of $50.29. And then for every $1 the fund rises above $60.20, our “smart money” trader will make $500,000!
XLE will need to decline to $36.80 for the put option trade to break even — around a 27% return from the current price of $50.29. And then for every $1 the fund decreases below $36.80, our “smart money” trader will make $500,000!
She seems to be anticipating the underlying fund to have a significant move in either direction within the next 7 months.
Trade #5: Trader Just Made $1,560,000 Betting That Financial Select Sector SPDR Fund (NYSE: XLF) Will Stay Bearish For The Next 1 Week.
On Wednesday, February 24, 2021, a “smart money” trader seems to have bought 30,000 of the 05-Mar-21 $34.00 call options on XLF for $0.30 per share. His outlay was $900,000 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), he also seems to have sold 30,000 of the 05-Mar-21 $33.00 call options on XLF for $0.82 per share, which is an inflow of $2,460,000. His total inflow for this Bear Call Spread Strategy was $1,560,000.
XLF – 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. He seems to be anticipating that the price of the stock would not cross above $33.00 until 05-Mar-2021.
Happy Trading!
— Trades of The Day Research Team