One of the most interesting “smart money” trades we came across yesterday was with Acceleron Pharma Inc. (NASDAQ: XLRN).
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 $7,350,000 Betting that XLRN will Stay Below $190 For the Next 7 Weeks
On Wednesday, September 29, 2021, a pro trader seems to have sold 12,250 of the November 19, 2021, $190 call options on XLRN for $6.00 per share. Her inflow was $7,350,000.
XLRN – Option Trade
XLRN will need to stay below $190 in the next 7 weeks so that the trader can buy back the 19-Nov-21 $190.00 call options for next to nothing. And then our “smart money” trader will get to keep the $7,350,000 she had received when selling the 19-Nov-21 $190.00 call options.
On analyzing the chart of XLRN, the stock seems to have broken down from the prevailing uptrend after forming a bearish engulfing candlestick pattern (marked as a blue color ellipse). The RSI is also moving lower after reaching overbought levels. This makes it likely our pro trader is bearish on XLRN.
XLRN – 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, $190 call options on XLRN for $6.00 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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