One of the most interesting “smart money” trades we came across yesterday was with ARKK Inc. (NYSE: ARKK).
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 $1,310,750 that ARKK Inc. will Stay Bearish For the Next 6 Weeks
On Monday, December 6, 2021, a pro trader seems to have bought 1,225 of the January 21, 2022, $100 put options on ARKK for $10.70 per contract. His outlay was $1,310,750.
The trade’s breakeven point is at $89.25, meaning that ARKK needs to decline to $89.25 for the put option trade to break even. This is a nearly 6% downside from the ETF’s previous close of $94.95. And then for every $1 the ETF falls below $89.25, our “smart money” trader will make $122,500!
On analyzing the chart of ARKK Inc., the ETF seems to have broken down from a symmetrical triangle pattern (marked as blue color lines). It is also currently trading below a support area (marked as a pink color dotted line), which would now act as a strong resistance area. All this makes it likely our pro trader is bearish on ARKK.
This lends credence to our conclusion that the pro sold these call options, as opposed to buying them.
If you agree and would like to mimic this trade, here’s how:
Buy to open the January 21, 2022, $100 put options on ARKK for $10.70 or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
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