One of the most interesting “smart money” trades we came across yesterday was with Facebook, Inc. (NASDAQ: FB).
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 Made $4,035,000 Betting that FB will Stay Below $355 For the Next 8 Weeks
On Wednesday, September 22, 2021, a pro trader seems to have sold 3,000 of the November 19, 2021, $355 call options on FB for $13.45 per share. Her inflow was $4,035,000.
FB – Option Trade
FB will need to stay below $355 in the next 8 weeks so that the trader can buy back the 19-Nov-21 $355.00 call options for next to nothing. And then our “smart money” trader will get to keep the $4,035,000 she had received when selling the 19-Nov-21 $355.00 call options.
On analyzing the chart of FB Inc., the stock seems to have broken down from an uptrend channel (marked as brown color lines) and is currently below the 50-day SMA (marked in blue color in the chart). There is also a gap resistance nearby for the stock, which is marked as a pink color dotted line. All this makes it likely our pro trader is bearish on FB Inc.
FB – Daily Chart
This lends credence to our conclusion that the pro sold these call options, as opposed to buying them.
If you agree and would like to mimic this trade, here’s how:
Sell to open the November 19, 2021, $355 call options on FB for $13.45 or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
Happy Trading!
— Trades of The Day Research Team
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