One of the most interesting “smart money” trades we came across yesterday was with iShares China Large-Cap ETF (NYSEARCA: FXI).
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 $1,185,000 that FXI Will Continue to Climb in the Next 6 Weeks
On Tuesday, May 31, 2022, a pro trader seems to have bought 15,000 of the July 15, 2022, $34 call options on FXI for $0.79 per contract. Her outlay was $1,185,000.
The trade’s breakeven point is at $34.79, meaning that FXI needs to rise to $34.79 for the call option trade to break even. This is a nearly 9% upside from the stock’s previous close of $31.86. And then for every $1 the stock rises above $34.79, our “smart money” trader will make $1,500,000!
On analyzing the daily chart of FXI, the stock seems to have broken out of a symmetrical triangle pattern (marked as blue color lines). This breakout level would now act as a strong support area. The stock is also trading above gap support, which is marked as a pink color dotted line. All this makes it likely that our pro trader is bullish on FXI.
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 July 15, 2022, $34 call options on FXI for $0.79 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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