Option Trade of The Day: Digital World Acquisition (DWAC)

One of the most interesting “smart money” trades we came across yesterday was with Digital World Acquisition Corp (NASDAQ: DWAC).

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 $27,121,200 that DWAC Will Continue to Climb in this Week

On Wednesday, January 19, 2022, a pro trader seems to have bought 4,600 of the January 21, 2022, $20 call options on DWAC for $58.20 per contract. Her outlay was $27,121,200.

DWAC – Option Trade

The trade’s breakeven point is at $78.20, meaning that DWAC needed to rise to $78.20 for the call option trade to break even. This is near the stock’s previous close of $77.45. And then for every $1 the stock rises above $78.20, our “smart money” trader will make $466,000.

On analyzing the daily chart of DWAC, the stock seems to have broken out of a symmetrical triangle pattern, which is marked as blue color lines. This makes it likely our pro trader is bullish on DWAC.

DWAC – 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, $20 call options on DWAC for $58.20 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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