One of the most interesting “smart money” trades we came across yesterday was with Cisco Systems Inc (NASDAQ: CSCO).
If you’re new here, a “smart money” trade is a relatively large volume option trade most likely made by a pro trader. The idea is to analyze unusual options activity, identify an interesting “smart money” trade, and then make our best guess as to:
- Which direction the trader thinks the stock is headed
- How much they think it will rise (or fall), and
- In what time frame this will all happen.
If we like what we see after putting all these pieces together, we can mimic the “smart money” trade (on a smaller scale), and potentially ride alongside our pro trader to profits. With all this in mind…
A Pro Trader Just Bet $2,900,000 that CSCO will Rise in the Next 14 Months
On Thursday, September 16, 2021, a pro trader seems to have bought 10,000 of the January 20, 2023, $65 call options on CSCO for $2.90 per share. Her outlay was $2,900,000.
The trade’s breakeven point is at $67.90, meaning that CSCO will need to rise to $67.90 for the call option trade to break even. This is a nearly 18% return from the current stock price of $57.33. And then for every $1 the stock rises above $67.90, our “smart money” trader will make $1,000,000!
On analyzing the chart of CSCO, the stock seems to be on an uptrend. The trendline ((marked as a blue color line) had historically acted as a support level for the stock to bounce higher. The stock is currently near the trendline support, implying that the stock could move higher from here. This makes it likely our pro trader is bullish on Cisco Systems Inc.
This lends credence to our conclusion that the pro bought these call options, as opposed to selling them.
If you agree and would like to mimic this trade, here’s how:
Buy to open the January 20, 2023, $65 call options on CSCO for $2.90 or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
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