Option Trade of The Day: SPDR S&P 500 ETF (SPY)

One of the most interesting “smart money” trades we came across yesterday was with SPDR S&P 500 ETF Trust (NYSE: SPY).

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:

  1. Which direction the trader thinks the stock is headed
  2. How much they think it will rise (or fall), and
  3. 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 $38,115,000 that SPY Will Continue to Climb in the Next 2 Weeks

On Friday, December 3, 2021, a pro trader seems to have bought 3,000 of the December 17, 2021, $324 call options on SPY for $127.05 per contract. Her outlay was $38,115,000. 

SPY – Option Trade

The trade’s breakeven point is at $451.05, meaning that SPY needed to rise to $451.05 for the call option trade to break even. This is near the ETF’s previous close of $453.42. And then for every $1 the ETF rises above $451.05, our “smart money” trader will make $300,000!

On analyzing the weekly chart of SPY, the ETF seems to be trading within an upward sloping trend channel which is marked as blue color lines. It is currently near the lower rail of the trend channel and looks poised to move higher. The ETF is also trading above gap support, which is marked as pink color dotted line. All this makes it likely our pro trader is bullish on SPY.

SPY – 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 December 17, 2021, $324 call options on SPY for $127.05 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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