One of the most interesting “smart money” trades we came across yesterday was with Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN (BATS: VXX).
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 $1,695,000 that VXX Will Continue to Climb in the Next 6 Weeks
On Friday, March 4, 2022, a pro trader seems to have bought 5,000 of the April 14, 2022, $30 call options on VXX for $3.39 per contract. His outlay was $1,695,000.
Interestingly, there seems to be one more option trade done for VXX yesterday, for the same strike price and expiration date, for another million dollars.
VXX – Option Trade
The trade’s breakeven point is at $33.39, meaning that VXX needs to rise to $33.39 for the call option trade to break even. This is a nearly 27% upside from the stock’s previous close of $26.20. And then for every $1 the stock rises above $33.39, our “smart money” trader will make $500,000!
On analyzing the daily chart of VXX, the stock seems to have broken out of a downtrend channel (marked as blue color lines). This breakout level would now act as a strong support area. It 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 VXX.
VXX – 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 April 14, 2022, $30 call options on VXX for $3.39 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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