Unusual Options Activity: Three Bets Totaling $2 Million
Today’s unusual options activity is a quick reminder that big moves in the market are not always end. Sometimes, they’re just the beginning of even bigger moves.
Often, our gut tells us to avoid stocks that either went up too far too fast, or are plunging and look like they are headed to zero.
That’s FOMO talking. We hate thinking we missed out.
Nobody wants to be late to the party.
But time and time again, our gut will prove to be wrong, only to see a stock continue to soar (or a beaten down company turn around).
That’s exactly what the traders that showed up on my unusual options activity scanner last week are betting on. These traders are willing to place big bets on stocks that have already been making big moves.
And it’s a smart play.
Most investors like to ignore volatile stocks.
But as options traders, to make money, we need stocks to move.
That’s what creates outsized returns. And the three stocks we’ll cover today are clearly on the move and in a position to deliver even bigger gains going forward.
Unusual Suspect No. 1: Cenovus Energy (NYSE: CVE)
Our first one is a bet that the trend will continue.
Rising stocks tend to scare off some investors. Not for this guy (or girl).
They bet $1.4 million that Cenovus Energy (NYSE: CVE) will rise to at least $10.50 over the next month. They scooped up the July 16, 2021 $10 calls for about $0.50 apiece.
This bet came after the oil and gas stock rallied 15% in just two weeks. The stock rose to about $10. The trader is betting on a breakout to carry the stock past $10.50 over the next few weeks, an additional 5% rise.
Again, this trader is betting $1.4 million. Something tells them that Cenovus’ move isn’t over just yet and more gains are to come.
The stock is up today but still below the trader’s price target.
Unusual Suspect No. 2: ViewRay (Nasdaq: VRAY)
Whenever I see someone willing to put millions of dollars on the line, I pay attention.
It won’t always be millions of dollars, but I often still see substantial bets well into the six figures.
Our next hit on unusual options activity came later in the week, on Thursday, just as the underlying stock dropped as much as 10%.
I’m talking about ViewRay (Nasdaq: VRAY), a manufacturer of radiation therapy systems.
It was a bold $450,000 play on a rebound over the next month, with a July 16, 2021 expiration. This trader bought the $6 calls for about $0.60.
Since they went out to July 16, that’s enough time to see a rebound play out. But it’s cutting it a little close. They still have to be right.
At just a $6 call option, the price of the option is a hefty 10% premium to the strike. That means the stock would have to get above $6.60 before the option expires just to hit breakeven.
The stock closed last Thursday at $5.76, roughly 15% away from the breakeven price.
Even though this stock had just dipped 10% when they jumped in, shares had been on a massive rally over the last two months, climbing more than 60%.
It was just a tiny dip by comparison, but this trader used it as a buying opportunity. We know this stock can move way more than 15% in a month, which could lead to some nice profits before it expires.
But they have to be right about this rebound. If the stock bounces from here, this trader will see one heck of a payday. If it doesn’t, well, you know how it goes.
Unusual Suspect No. 3: Tencent Music Entertainment (NYSE: TME)
Our last stock spotted with unusual options activity last week is Tencent Music Entertainment (NYSE: TME), the Chinese-based music streaming giant.
Shares are down 50% from its peak just three months ago. And this trader jumps in with a $432,000 bet that expires on June 25, next Friday. They bought the June 25 $18 calls for $0.24 per share.
They need the stock to rally more than 15% just to hit their breakeven price and have a chance at profits over the next week.
I love this kind of trade.
Don’t get me wrong, it’s a clear gamble on the stock to rise. But after a stock has been beaten down so much, there’s a breaking point that eventually leads to big gains ahead.
Some stocks will be falling knives, and continue lower. That’s why it’s dangerous to try to pick the bottoms on these. But that’s why we use technical analysis and unusual options activity to spot where big traders are placing bets.
And with over $400,000 on the line with a two-week expiration, I’d say we are looking at a pretty unusual bet where someone may know something we don’t.
We’ll figure out soon enough by the time this option expires next Friday.
The bottom line is that these three stocks are on the move. Options traders love stocks that move so it’s no surprise why we’re seeing unusual bets on these three.
Editor, Quick Hit Profits
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