What if you could mimic the moves of some of the best-informed traders on the planet? That’s the idea behind our new series 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, one of the most interesting “smart money” trades we came across during the past day is Baidu Inc. (NASDAQ: BIDU).
Baidu Inc. is a Chinese multinational technology company specializing in Internet-related services and products and artificial intelligence, headquartered in Beijing’s Haidian District. It is one of the largest AI and Internet companies in the world.
This Veteran Trader Just Executed a Complex Options Strategy and Bet $1,075,250 That Baidu Inc. (NASDAQ: BIDU) Will Stay Within A Range For The Next 7 Weeks and then Rise More Than 9%.
On Tuesday, August 24, 2021, a seasoned “smart money” trader seems to have sold 1,150 of the 15-Oct-21 $170 call options on BIDU for $4.50 per share. His inflow was $517,500 for these options. In what appears to be a Long Calendar Call Spread Strategy (wherein the investor simultaneously sells and buys a call option with the same strike price, but the call he buys will have a later expiration date than the call he sells), he also seems to have bought 1,150 of the 18-Mar-22 $170 call options on BIDU for $13.85 per share, which is an outlay of $1,592,750. His total outlay for this Long Calendar Call Spread Strategy was $1,075,250.
BIDU – Long Calendar Call Spread Options Strategy
Note that the trader is taking advantage of accelerating time decay on the shorter-term call, which means that the strategy is about the time value.
The trader is anticipating the stock to stay below $170 until 15-Oct-21. Just before the 15-Oct-21 (front-month) expiration, the trader is anticipating to buy back the call for next to nothing and keep the $517,500 made by selling the front-month call.
At the same time, he could either opt to sell the back-month call to close his position if the back-month call has significant time value; or continue to hold the back-month call until expiry.
In case he opts to hold the 18-Mar-22 (back-month) call until expiry, he could either get unlimited profits in case the stock price increases or incur a loss in case the stock price decreases. However, the maximum loss would be limited to $1,075,250.
In this case, the trader seems to be anticipating the stock to surge above $170 after 18-Mar-22, which is a nearly 9.6% upside from the stock’s previous close of $155.08.
Note: The level of knowledge required for this trade is considerable because the strategy deals with options that expire on different dates. Therefore, such trades are usually opted by seasoned Veterans and higher.
Happy Trading!
— Trades of The Day Research Team
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