One of the most interesting “smart money” trades we came across yesterday was with CVS Health Corp (NYSE: CVS).
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 $6,570,000 that CVS Will Stay Bullish For the Next 15 Months
On Wednesday, October 20, 2021, a pro trader seems to have bought 1,800 of the January 20, 2023, $50 call options on CVS for $36.50 per share. His outlay was $6,570,000.
CVS – Option Trades
Interestingly, there seem to be multiple option trades done for CVS yesterday, for the same strike price and expiration date, with the total amount translating to 100s of millions of dollars.
The trade’s breakeven point is at $86.50, meaning that CVS needed to rise to $86.50 for the call option trade to break even. This is near the stock’s previous close of $86.55. And then for every $1 the stock rises above $86.50, our “smart money” trader will make $180,000!
On analyzing the weekly chart of CVS, the stock seems to have broken out of a double bottom pattern (marked as blue color lines). There is also a strong long-term support area (marked as a red color dotted line) near $50, which would act as an additional level of support for the stock. All this makes it likely our pro trader is bullish on CVS.
CVS – Weekly Chart
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, $50 call options on CVS for $36.50 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
This is the #1 Stock to Buy for the AI Tidal Wave [sponsor]Marc Chaikin warned people about NVDA before its 2023 bull run - now he's naming his next pick or the AI tidal wave. Learn more here.