One of the most interesting “smart money” trades we came across yesterday was with Direxion Daily S&P 500 Bull 3X Shares (NYSE: SPXL).
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 $2,130,000 that SPXL Will Continue to Climb in the Next 2 Weeks
On Monday, January 10, 2022, a pro trader seems to have bought 500 of the January 21, 2022, $90.00 call options on SPXL for $42.60 per contract. Her outlay was $2,130,000.
SPXL – Option Trade
Interestingly, there seem to be two more option trades done for SPXL yesterday, for the same strike price and expiration date.
The trade’s breakeven point is at $132.60, meaning that SPXL needed to rise to $132.60 for the call option trade to break even. This is near the stock’s previous close of $134.84. And then for every $1 the stock rises above $132.60, our “smart money” trader will make $50,0000.
On analyzing the daily chart of SPXL, the stock seems to be trading within an uptrend channel (marked as blue color lines). The stock is also trading above a gap support area which is marked as a pink color dotted line. The stock has currently taken support near this level. All this makes it likely that our pro trader is bullish on SPXL.
SPXL – 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, $90.00 call options on SPXL for $42.60 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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