One of the most interesting “smart money” trades we came across yesterday was with United States Oil ETF (NYSE: USO).
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 $1,497,600 that USO Will Continue to Climb in the Next 9 Months
On Wednesday, March 2, 2022, a pro trader seems to have bought 576 of the December 16, 2022, $50 call options on USO for $26.00 per contract. His outlay was $1,497,600.
USO – Option Trade
The trade’s breakeven point is at $76.00, meaning that USO needs to rise to $76.00 for the call option trade to break even. This is near the ETF’s previous close of $75.42. And then for every $1 the ETF rises above $76.00, our “smart money” trader will make $57,600!
On analyzing the daily chart of USO, the ETF seems to have broken out of an upward sloping trend channel (marked as blue color lines). This breakout level would now act as a strong support area. The ETF is also trading above a strong support area which is marked as a pink color dotted line. All this makes it likely that our pro trader is bullish on USO.
USO – 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 December 16, 2022, $50 call options on USO for $26.00 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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