One of the most interesting “smart money” trades we came across yesterday was with Berkshire Hathaway Inc. Class B (NYSE: BRK.B).
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 $5,997,600 that BRK.B Will Continue to Climb in the Next 19 Months
On Tuesday, June 14, 2022, a pro trader seems to have bought 476 of the January 19, 2024, $170 call options on BRK.B for $126.00 per contract. Her outlay was $5,997,600.
BRK.B – Option Trade
The trade’s breakeven point is at $296.00, meaning that BRK.B needs to rise to $296.00 for the call option trade to break even. This is a nearly 7% upside from the stock’s previous close of $277.64. And then for every $1 the stock rises above $296.00, our “smart money” trader will make $47,600!
On analyzing the daily chart of BRK.B, the stock seems to be trading within an upward sloping trend line (marked as blue color lines). It is also trading above a support area, which is marked as a pink color dotted line. All this makes it likely that our pro trader is bullish on BRK.B.
BRK.B – 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 19, 2024, $170 call options on BRK.B for $126.00 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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