One of the most interesting “smart money” trades we came across yesterday was with Tesla Inc. (NASDAQ: TSLA).
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 $18,155,000 that TSLA Will Continue to Climb in the Next 15 Weeks
On Monday, November 1, 2021, a pro trader seems to have bought 500 of the February 18, 2022, $800 call options on TSLA for $363.10 per contract. Her outlay was $18,155,000.
TSLA – Option Trade
The trade’s breakeven point was at $1163.10, meaning that TSLA needed to rise to $1163.10 for the call option trade to break even. This is already nearly 4% above the stock’s previous close of $1,208.59. For every $1 the stock rises above $1163.10, our “smart money” trader makes $50,000!
On analyzing the daily chart of TSLA, the stock seems to have broken out of a pennant pattern (marked as pink color lines). This breakout level, which is near $700, would now act as a strong support area. The stock is also trading above gap support near $900 (marked as a blue color dotted line), which gives another level of support for the stock. All this makes it likely our pro trader is bullish on TSLA.
TSLA – Daily 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 February 18, 2022, $800 call options on TSLA for $363.10 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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