Unusual Options Activity: Does This Trader Read TOM?
Let’s kick this Monday off right with some more unusual options activity…
My radar showed a lot of bearish AND bullish activity last week. That doesn’t help us much direction-wise in this choppy market.
Clearly investors are adjusting to the broader issues coming up, like the surging COVID cases and chaos in Afghanistan.
But, it’s not an all-out panic. And that’s good news.
The market will always give you a reason to sell your shares and take a bearish stance. That’s why bull markets are often called climbing a “wall of worry.” There’s doubt the entire way.
We are in uncertain times, but that doesn’t mean it’s time to stop trading. We’ll continue to find profitable opportunities and that’s exactly what these big-money trades are looking for today.
I have three options bets that had over $4 million in total flowing through them.
Here’s what to watch…
A Huge Reversal Bet
Target (NYSE: TGT), the retail giant, posted better-than-expected earnings last Thursday. But the good news wasn’t enough to lift its stock.
Due to slowing growth, both in-store and online, investors sent the stock nearly 3% lower. That brings its overall loss for the last two weeks to about 8%.
Now, recently we’ve highlighted options activity where traders are simply going with the trend. This one isn’t doing that.
Instead of more bearish bets, we saw several traders step in and buy calls on the stock. The one that stood out was a $1 million trade on the September 17, 2021 $270 call options for $1.26.
This is an outright bet that the stock reverses course, heads to new all-time highs, all in the next month. A huge bullish bet on a reversal here.
A Strange, Short-Term Gamble
Another bullish trade that stood out was on gaming tech company Skillz (NYSE: SKLZ). A trader is looking at another bounce-back play, this time in just a week.
They purchased the August 27, 2021 (this Friday) $11 call options for $0.40. With 28,000 contracts traded, this is over a million dollars on a weekly bet.
This is one volatile stock though. Since early February, shares have collapsed more than 70%. It’s been a steady decline over the past few months.
This action came on a day where the stock was down over 5%. Now they need to see the stock jump more than 10% in just one week to get back to breakeven.
I’m not sure what gives this trader a reason to bet on a bounce. But they were willing to lay some money on it this week. Maybe they know something we don’t?
Does This Trader Read TOM?
Our last trade to highlight is a bearish bet with a put option. (See, I told you there were some bearish trades!)
If you caught my article last Thursday, you know I’m looking for weakness right now in the financials sector.
This trader is seeing that same weakness, and went ahead and added a boatload of puts on American International Group (NYSE: AIG). I wonder if they’re a reader…
They bought the September 10, $53 puts for $1.47. With 15,000 contracts traded, this is more than $2 million on the line.
Once again, a trader is betting on a reversal. This stock is up more than 10% this month alone, but is starting to show some weakness.
All it took was a 3% dip for the trader to jump in and bet on the momentum to the downside gaining traction.
For this trader to double their money, the stock only needs to fall 5.7% over the next three weeks.
That’s all this week. Remember, these buyers have money to burn.
It’s still big money and potentially million-dollar gains — that’s why I like to follow it. But use caution when trading, as they are not always going to deliver profits.
Nothing in the markets is guaranteed… even with millions on the line.
Editor, Quick Hit Profits
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Chart of the Day:Keep It Simple, Play the Range
Chris shared this chart with me the other day, of the iShares Russell 2000 ETF (NYSEARCA: IWM).It’s one of the simplest trading plans I can think of for this market… As we’ve highlighted for the past couple months, small caps have been stuck in a roughly 10% trading range. IWM has stubbornly bounced between $209 and $234 for almost all of 2021. Frustrating for small-cap investors, for sure. But what’s a trader to do? Identify the range… and play it. The two yellow lines in the chart above show those two stubborn levels. Once you have the evidence to call these ranges (I’d say you would’ve had enough by May) it just becomes a game of buying puts at $234 and buying calls at $209, dated out a couple of months to give you time. That’s it. Each green and red arrow shows when this trade would’ve worked. Sounds easy… but the thing about these patterns is they work great until they don’t. Should IWM make a surprise breakout of either end of this range, you should be prepared to bail on a trade moving against you. All these months of consolidation are sure to result in a big break, one way or the other, in due time. Regards, Mike Merson Managing Editor, True Options Masters