Option Trade of the Day: iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

One of the most interesting “smart money” trades we came across yesterday was with iShares iBoxx $ High Yield Corporate Bond ETF (NYSE: HYG).

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 $18,350,000 that HYG will Stay Bearish For the Next 5 Weeks

On Tuesday, May 10, 2022, a pro trader seems to have bought 10,000 of the June 17, 2022, $95 put options on HYG for $18.35 per contract. Her outlay was $18,350,000.

HYG – Option Trade

The trade’s breakeven point is at $76.65, meaning that HYG needs to decline to $76.65 for the put option trade to break even. This is near the stock’s previous close of $77.21. And then for every $1 the stock falls below $76.65, our “smart money” trader will make $1,000,000!

On analyzing the chart of HYG Inc., the stock seems to be trading within a downward sloping trend channel (marked in blue color). It is also currently trading below a resistance area, which is marked as a pink color dotted line. All this makes it likely our pro trader is bearish on HYG.

HYG – Daily Chart

This lends credence to our conclusion that the pro bought these put options, as opposed to selling them.

If you agree and would like to mimic this trade, here’s how:

Buy to open the June 17, 2022, $95 put options on HYG for $18.35 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.

Happy Trading!

— Trades of The Day Research Team

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