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 $3,348,000 Betting that FB will Stay Above $320 For the Next 6 Months
On Friday, October 22, 2021, a pro trader seems to have sold 1,200 of the April 14, 2022, $320 put options on FB for $27.90 per share. His inflow was $3,348,000.
FB – Option Trade
FB will need to stay above $320 in the next 6 months so that the trader can buy back the 14-Apr-22 $320 put options for next to nothing. And then our “smart money” trader will get to keep the $3,348,000 he had received when selling the 14-Apr-22 $320.00 put options.
On analyzing the daily chart of FB, the stock seems to have broken out of a flag pattern (marked as blue color lines). This breakout level would now act as a strong support area. The stock is also trading above a strong support area (marked as a pink color dotted line). All this makes it likely our pro trader is bullish on FB.
FB – Daily Chart
This lends credence to our conclusion that the pro sold these put options, as opposed to buying them.
If you agree and would like to mimic this trade, here’s how:
Sell to open the April 14, 2022, $320 put options on FB for $27.90 or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
Happy Trading!
— Trades of The Day Research Team
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