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 Bet $1,522,920 that IWM Will Continue to Climb in the Next 5 Weeks
On Wednesday, December 15, 2021, a pro trader seems to have bought 6,216 of the January 21, 2022, $228 call options on IWM for $2.45 per contract. His outlay was $1,522,920.
IWM- Option Trade
The trade’s breakeven point is at $230.45, meaning that IWM needs to rise to $230.45 for the call option trade to break even. This is a nearly 6% upside from the ETF’s previous close of $217.58. Then, for every $1 the ETF rises above $230.45, our “smart money” trader will make $621,600!
On analyzing the daily chart of IWM, the ETF seems to be trading within a channel (marked as blue color lines). The ETF is also trading above a strong support area, which is marked as a purple color line. This makes it likely that our pro trader is bullish on IWM.
IWM- 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 January 21, 2022, $228 call options on IWM for $2.45 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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