One of the most interesting “smart money” trades we came across yesterday was with Meta Platforms Inc. (NASDAQ: FB).
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 $2,085,600 that FB Will Continue to Climb in the Next 21 Months
On Wednesday, April 27, 2022, a pro trader seems to have bought 240 of the January 19, 2024, $100 call options on FB for $86.90 per contract. Her outlay was $2,085,600.
Interestingly, there seem to be multiple option trades done for FB yesterday, for the same strike price and expiration date, with the total amount translating to multi-million dollars.
The trade’s breakeven point is at $186.90, meaning that FB needs to rise to $186.90 for the call option trade to break even. This is a nearly 7% upside from the stock’s previous close of $174.95. And then for every $1 the stock rises above $186.90, our “smart money” trader will make $24,000!
On analyzing the daily chart of FB, the stock seems to be forming a falling wedge pattern (marked as blue color lines), which is considered a reversal pattern. The latest candle is also a doji (marked as a pink color ellipse), which generally signals a reversal pattern. This makes it likely that our pro trader is bullish on FB.
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 19, 2024, $100 call options on FB for $86.90 per contract 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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