Unusual Options Activity: Is This $2.5 Million Trade a Loser?

Happy Monday everyone!

Let’s get the week started with some unusual options activity my scanner picked up last week…

Today we’re looking at four unusual options trades, totaling $15 million.

Some are great plays, like a whopping $9 million bearish trade against Apple (AAPL).

But there’s also a multimillion-dollar trade that I’m not taking the bait on. This trader may have a ton of money, but this is still one trade I’d take the other side on.

Let’s dive right in…

$15 Million in Unusual Options Activity 

Snap Inc. (SNAP), operator of the popular social media app Snapchat, saw some heavy call option activity last week.

A trader was buying the $55 calls that expire on February 18, 2022. They spent $1.6 million on the trade and are betting on the stock to rebound after plunging the last two months.

As you can see on the chart, this idea isn’t that farfetched. It’s a volatile stock that’s chopped around between about $50 and $70 all year long. Now they’re simply betting on a bounce higher.

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They bought plenty of time for this to play out. And the price only needs to rally over $61 to double their money. That’s well within reach.

Next up is Affirm Holdings (AFRM).

AFRM was a popular trade on that Black Friday dip, but this time was a little different. Instead of a quick bounce higher, this trader was buying more time — going out to February 18.

The trades came in three chunks. One for $896,000 in premium, another for $824,000 and one more for $791,000, all on the same $120 strike. This totaled over $2.5m in capital on the directional bets.

All they’re doing is buying the dip. Check out the chart, though…

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The stock has sold off even more since the volatile Black Friday price moves, but it hasn’t scared off traders yet. They’re still buying hand over fist.

There’s still quite a bit of time on this trade, so keep a close eye on the price action in AFRM.

Now, time for the big one…

You all know about Apple (AAPL), the iPhone maker and overall tech giant. It’s a force to be reckoned with. The stock recently broke out to fresh all-time highs on a sharp move higher.

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Normally, you don’t want to fight a chart like this. But this trader plunged in with nearly $10 million in a bearish trade.

This may or may not be too unusual, since it’s such a widely covered traded stock. They could simply be hedging a massive position they have on the company.

But, even then, you have to think there might be something concerning them heading into 2022.

They bought out to June 17, over six months away, and grabbed the $160 strike price for $7.97 per share.

After its sharp run higher, I like the idea of a quick pullback. It may not get much below $160 though, because that’s where support kicks in. But we could still see a pullback large enough to make this trader money in the coming weeks.

Now, it’s time to talk about one unusual options activity trade I totally disagree with…

This Stock Is on My Bank It List  

This doesn’t happen often. But this time, the chart’s telling me this trader is making a big mistake.

NVIDIA (NVDA) is the target of this bearish activity, with one trader scooping up $2.5 million of the February 18, 2022 $285 put options for $25.95.

We’ve seen big bearish bets following beaten-down stocks, which I like because they’re simply riding the trend lower. But this is a stock on my Bank It list right now. I’m expecting it to head higher.

Here’s why…

After surging higher through October, the stock consolidated in November.

Bears might be looking at this action as weakness, but I see it as strength. NVDA is just chopping around, working off its overbought conditions.

By avoiding a major dip during November, it’s a bullish price chart as the bulls simply take a breather before likely continuing higher.

So even though there’s big money betting on a decline in the stock, I’m not following it just yet. I’d wait for the stock to break below that green support line before I’d put on any bearish trades.

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There’s always a chance the trader knows something, which is why we follow unusual options activity to begin with, but the price chart in this case is giving us the opposite signals.

How Are You Taking Advantage of Our UOA?

That’s all for this week’s unusual options activity. Before I sign off, though, I wanted to know something…

How are you trading this activity?

Do you find yourself agreeing with the trades these heavy hitters are putting on, or do you find them less reliable than your own trading ideas?

There are a lot of insights we can get from where big money flows, and confirming their trades with the charts gives us a next-level insight into what these traders are looking for.

Of course, there’s always the chance they simply know something we don’t, which we’ve seen quite often.

To me, that’s a key reason I like following this stuff.

But now, I want to know your thoughts.

Write us at TrueOptions@BanyanHill.com with your experiences.

If you’ve made money following this unusual options activity… or if you’re even skeptical of some of these trades like I was today, let me know.

Regards,

Chad Shoop, CMT
Editor, Quick Hit Profits

Chart of the Day:
Another Bullish Take on NVDA

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Inspired by Chad’s analysis of semiconductor giant NVIDIA (NVDA) today, I thought I’d take a closer look at the short-term action to see if the bears have a leg to stand on.

And what I found surprised me…

Take a look at the pink circles above. Those mark times whenever the long-term, 200-SMA caught up to the price of NVDA and its short-term moving averages (the 9-EMA, 20-EMA, and 50-MA).

When that happened in the past, NVDA’s share price did take some heat.

But those periods never lasted long, and often presented great buying opportunities.

Note that this is an hourly chart of NVDA, so while these 200-SMA crosses do spell some bearish price action, it generally doesn’t last longer than a few weeks.

Today, the 200-MA is quickly catching up to the price action and short-term moving averages in NVDA. It’s possible that NVDA bounces off that green line, which would avoid some downside. We’d just need to see a big green week in tech stocks.

Even if it does close, any further downside in NVDA likely won’t last long, and will probably get caught by its support at the $291 level. That’s nowhere near low enough for that unusual activity to be profitable.

I think Chad’s right to be skeptical of the big bearish trade. And as Mike Carr often says, the biggest winners tend to continue leading the market. NVDA is one to buy on dips here.

Regards,

Mike Merson
Managing Editor, True Options Masters