One of the most interesting “smart money” trades we came across yesterday was with Eli Lilly And Co (NYSE: LLY).
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 $3,718,000 that LLY Will Stay Bullish For the Next 11 Weeks
On Thursday, November 11, 2021, a pro trader seems to have bought 400 of the January 21, 2022, $170 call options on LLY for $92.95 per contract. His outlay was $3,718,000.
LLY – Option Trade
Interestingly, there seem to be multiple option trades done for LLY yesterday, for the same strike price and expiration date, with the total amount translating to 100s of millions of dollars.
The trade’s breakeven point is at $262.95, meaning that LLY needs to rise to $262.95 for the call option trade to break even. This breakeven point is near the stock’s previous close of $262.63. And then for every $1 the stock rises above $262.95, our “smart money” trader will make $40,000.
On analyzing the daily chart of LLY, the stock seems to have broken out of a flag pattern (marked as blue color lines). There is also a strong gap support area (marked as purple color dotted lines) which would act as an additional level of support for the stock. All this makes it likely our pro trader is bullish on LLY.
LLY – 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 January 21, 2022, $170 call options on LLY for $92.95 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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