One of the most interesting “smart money” trades we came across yesterday was with iShares Russell 2000 ETF (NYSE: IWM).
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 $17,325,000 Betting that IWM will Stay Above $235 For the Next 7 Months
On Wednesday, November 3, 2021, a pro trader seems to have sold 11,000 of the June 17, 2022, $235 put options on IWM for $15.75 per contract. His inflow was $17,325,000.
IWM – Option Trade
IWM will need to stay above $235 in the next 7 months so that the trader can buy back the 17-Jun-22 $235.00 put options for next to nothing. And then our “smart money” trader will get to keep the $17,325,000 he had received when selling the 17-Jun-22 $235.00 put options.
On analyzing the chart of IWM, the ETF seems to have broken out of a long-term consolidation area, which is marked as a purple color rectangle. This makes it likely that our pro trader is bullish on IWM.
IWM – 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 June 17, 2022, $235 put options on IWM for $15.75 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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