What if you could mimic the moves of some of the best-informed traders on the planet? That’s the idea behind a new series we’re launching that’s focused on what we’ll call “smart money” option trades.
In short, we’re using Market Chameleon to scan the options market for unusual activity and identifying some of the most interesting mega trades – relatively large volume options trades we can potentially mimic… but on a smaller scale!
While we can’t be 100% certain of the exact options strategies our “smart money” traders are employing on these trades, these are our best guesses based on the information we do have.
That said, here are 5 of the most interesting “smart money” trades we came across in the past week.
Trade #1: Trader Just Bet $357,120 That Fubotv Inc. (NYSE: FUBO) Will Decline 10% in 2 Weeks
On Thursday, December 24, 2020, a “smart money” trader seems to have bought 992 of the 15-Jan-21 $40.00 put options on FUBO for $5.27 per share. His outlay was $522,784 for these options. In what appears to be a Bear Put Spread Strategy (wherein the investor buys a put option with a higher strike price and sells a put option with a lower strike price but with the same expiry date), he also seems to have sold 992 of the 15-Jan-21 $30.00 put options on FUBO for $1.67 per share, which is an inflow of $165,664. His total outlay for this Bear Put Spread Strategy was $357,120.
FUBO – Bear Put Spread Options Trade
FUBO needed to decline to $36.40 for the put option trade to break even. Then, for every $1 the stock moves below $36.40, our “smart money” trader will make $99,200! It may be noted that the trader’s profit will be limited till the price of $30.00 as he had sold the $30 strike price put options.
He seems to be anticipating the underlying stock to decline until $30.00, which is a nearly 10% return from the current price of $33.31.
Trade #2: Trader Just Bet $767,000 That Pinduoduo Inc – ADR (NASDAQ: PDD) Will Rise 9% in 2 Weeks.
On Wednesday, December 30, 2020, a “smart money” trader seems to have bought 1,300 of the 15-Jan-21 $175.00 call options on PDD for $9.40 per share. Her outlay was $1,222,000 for these options. In what appears to be a Bull Call Spread Strategy (wherein the investor buys a call option with a lower strike price and sells a call option with a higher strike price but with the same expiry date), she also seems to have sold 1,300 of the 15-Jan-21 $195.00 call options on PDD for $3.50 per share, which is an inflow of $455,000. Her total outlay for this Bull Call Spread Strategy was $767,000.
PDD – Bull Call Spread Options Trade
PDD needs to rise to $180.90 for the call option trade to break even – around a 1% return from the current price of $179.11. Then, for every $1 the stock rises above $180.90, our “smart money” trader will make $130,000!
She seems to be anticipating the underlying stock to surge until $195.00, which is a nearly 9% return from the current price of $179.11.
Trade #3: This Expert Trader Just Executed a Complex Options Strategy and Bet That AT&T Inc. (NYSE: T) Will Decline 2% in 2 Weeks.
On Tuesday, December 29, 2020, a veteran “smart money” trader seems to have sold 29,524 of the 15-Jan-21 $28.00 put options on T for $0.47 per share. His inflow was $1,387,630 for these options. In what appears to be a Long Calendar Put Spread Strategy (wherein the investor simultaneously sells and buys a put option with the same strike price, but the put he buys will have a later expiration date than the put he sells), he also seems to have bought 29,524 of the 19-Feb-21 $28.00 put options on T for $1.09 per share, which is an outlay of $3,218,120. His total outlay for this Long Calendar Put Spread Strategy was $1,830,490.
AT&T – Long Calendar Put Spread Options Trade
Note that the Trader is taking advantage of accelerating time decay on the shorter-term put, which means that the strategy is about the time value.
The price of AT&T will need to decline to $28.00 in the next two weeks so that the trader can buy back the 15-Jan-21 $28.00 put options for next to nothing – a nearly 2% return from the current price of $28.49. And then our “smart money” trader will get to keep the $1,387,630 he had received when selling the 15-Jan-21 $28.00 put options on T.
He could continue to hold the 19-Feb-21 $28.00 put options until expiry and get unlimited profits in case the stock price declines. Alternatively, he could cover the 19-Feb-21 $28.00 put options on AT&T and possibly incur losses there, but this loss would be limited due to the time value.
Trade #4: Trader Just Made $2,807,200 Betting That Amazon.com, Inc. (NASDAQ: AMZN) Will Stay Bearish For The Next 3 Weeks.
On Tuesday, December 29, 2020, a “smart money” trader seems to have bought 880 of the 22-Jan-21 $3250.00 call options on AMZN for $138.95 per share. Her outlay was $12,227,600 for these options. In what appears to be a Bear call spread Strategy (wherein the investor buys a call option with a higher strike price and sells a call option with a lower strike price, but with the same expiry date), she also seems to have sold 880 of the 22-Jan-21 $3200.00 call options on AMZN for $170.85 per share, which is an inflow of $15,034,800. Her total inflow for this Bear Call Spread Strategy was $2,807,200.
AMZN – Bear Call Spread Options Trade
A Bear Call Spread strategy is typically used to generate premium income based on a trader’s bearish view of a stock or index. She seems to be anticipating that the price of AMZN would not cross above $3200.00 until 22-Jan-21 – which is a nearly 3% decline from the current price of $3,285.85.
Trade #5: Trader Just Bet $8,758,400 That Alibaba Group Holding Ltd – ADR (NYSE: BABA) Will Have a Significant Move in Either Direction By Mid-June.
On Wednesday, December 30, 2020, a “smart money” trader seems to have bought 1,600 of the 18-Jun-21 $240 call options on BABA for $26.12 per share. His outlay was $4,179,200 for these options. In what appears to be a Long Straddle Strategy (wherein the investor simultaneously purchases a call option and a put option on the same underlying asset with the same expiration date and strike price), he also seems to have bought 1,600 of the 18-Jun-21 $240 put options on BABA for $28.62 per share, which is an outlay of $4,579,200. His total outlay for this Long Straddle Strategy was $8,758,400.
BABA – Long Straddle Options Trade
BABA will need to rise to $294.74 for the call option trade to break even — around a 24% return from the current price of $238.39. And then for every $1 the stock rises above $294.74, our “smart money” trader will make $160,000!
BABA will need to decline to $185.26 for the put option trade to break even — around a 22% return from the current price of $238.39. And then for every $1 the stock decreases below $185.26, our “smart money” trader will make $160,000!
He seems to be anticipating the underlying stock to have a significant move in either direction within the next six months.
Happy Trading!
— Trades of The Day Research Team
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