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 $285,000 Betting That iShares iBoxx $ High Yield Corporate Bond ETF (NYSE: HYG) Will Stay Bullish For The Next 8 Weeks.
On Wednesday, May 19, 2021, a “smart money” trader seems to have bought 15,000 of the 16-Jul-21 $82.00 put options on HYG for $0.37 per share. His outlay was $555,000 for these options. In what appears to be a Bull Put Spread Strategy (wherein the investor buys a put option with a lower strike price and sells a put option with a higher strike price but with the same expiry date), he also seems to have sold 15,000 of the 16-Jul-21 $84.00 put options on HYG for $0.56 per share, which is an inflow of $840,000. His total inflow for this Bull Put Spread Strategy was $285,000.
HYG – Bull Put Spread Options Strategy
A Bull Put Spread Strategy is typically used to generate premium income based on a trader’s bullish view of a stock or index. He seems to be anticipating that the price of the ETF would stay above $84.00 until 16-Jul-2021.
Trade #2: Trader Just Bet $1,743,000 That Lordstown Motors Corp (NASDAQ: RIDE) Will Have a Significant Move in Either Direction in 4 Weeks.
On Tuesday, May 18, 2021, a “smart money” trader seems to have bought 3,000 of the 18-Jun-21 $15.00 call options on RIDE for $0.38 per share. Her outlay was $114,000 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), she also seems to have bought 3,000 of the 18-Jun-21 $15.00 put options on RIDE for $5.43 per share, which is an outlay of $1,629,000. Her total outlay for this Long Straddle Strategy was $1,743,000.
RIDE – Long Straddle Options Strategy
RIDE will need to rise to $20.63 for the call option trade to break even — around An 80% return from the current price of $11.45. And then for every $1 the stock rises above $20.63, our “smart money” trader will make $300,000!
RIDE will need to decline to $9.19 for the put option trade to break even — around a 20% return from the current price of $11.45. And then for every $1 the stock decreases below $9.19, our “smart money” trader will make $300,000!
She seems to be anticipating the underlying stock to have a significant move in either direction within the next 4 weeks.
Trade #3: Trader Just Bet $1,600,000 That VanEck Vectors Gold Miners ETF (NYSE: GDX) Will Rise 26% in 8 Weeks.
On Monday, May 17, 2021, a “smart money” trader seems to have bought 20,000 of the 16-Jul-21 $43.00 call options on GDX for $1.04 per share. His outlay was $ 2,080,000 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), he also seems to have sold 20,000 of the 16-Jul-21 $49.00 call options on GDX for $0.24 per share, which is an inflow of $480,000. His total outlay for this Bull Call Spread Strategy was $1,600,000.
GDX – Bull Call Spread Options Strategy
GDX needs to rise to $43.80 for the call option trade to break even – a 12% return from the current price of $39.04. Then, for every $1 the ETF rises above $43.80, our “smart money” trader will make $2,000,000!
He seems to be anticipating the underlying ETF to surge until $49.00, which is a nearly 26% return from the current price of $39.04.
Trade #4: Trader Just Made $1,035,000 Betting That iShares China Large-Cap ETF (NYSE: FXI) Will Stay Bearish For The Next 6 Weeks
On Tuesday, May 18, 2021, a “smart money” trader seems to have bought 45,000 of the 18-Jun-21 $49.00 call options on FXI for $0.11 per share. Her outlay was $495,000 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 45,000 of the 18-Jun-21 $47.00 call options on FXI for $0.34 per share, which is an inflow of $1,530,000. Her total inflow for this Bear Call Spread Strategy was $1,035,000.
FXI – 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 ETF would not cross above $47.00 until 18-Jun-21. FXI’s last close was $45.13.
Trade #5: Trader Just Bet $1,912,500 That SPDR Gold Trust (NYSE: GLD) Will Decline 9% in 5 Weeks
On Wednesday, May 19, 2021, a “smart money” trader seems to have bought 21,250 of the 25-Jun-21 $170.00 put options on GLD for $1.18 per share. His outlay was $2,507,500 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 21,250 of the 25-Jun-21 $160.00 put options on GLD for $0.28 per share, which is an inflow of $595,000. His total outlay for this Bear Put Spread Strategy was $1,912,500.
GLD – Bear Put Spread Options Strategy
GLD will need to decline to $169.10 for the put option trade to break even – around a 3% return from the current price of $175.16. Then, for every $1 the ETF moves below $169.10, our “smart money” trader will make $2,125,000! It may be noted that the trader’s profit will be limited till the price of $160.00 as he had sold the $160 strike price put options.
He seems to be anticipating the underlying stock to decline until $160.00, which is a nearly 9% return from the current price of $175.16.
Happy Trading!
— Trades of The Day Research Team
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