One of the most interesting “smart money” trades we came across yesterday was with Zynga Inc. (NASDAQ: ZNGA).
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 $3,225,000 that ZNGA Will Continue to Climb in the Next 2 Weeks
On Tuesday, January 11, 2022, a pro trader seems to have bought 15,000 of the January 21, 2022, $6.50 call options on ZNGA for $2.15 per contract. Her outlay was $3,225,000.
The trade’s breakeven point is at $8.65, meaning that ZNGA needed to rise to $8.65 for the call option trade to break even. This is near the stock’s previous close of $8.85. And then for every $1 the stock rises above $8.65, our “smart money” trader will make $1,500,000.
On analyzing the daily chart of ZNGA, the stock seems to have broken out of a downtrend 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 ZNGA.
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, $6.50 call options on ZNGA for $2.15 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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