Unusual Options Activity: Worried About the Dip? These Guys Aren’t…
Welcome to another edition of Unusual Options Activity!
l mentioned last Thursday why I’m so bullish right now.
It’s in the data…
Weakness in the market like we’ve seen lately has led to average gains of 6.5% over the following three months. And this happened 90% of the time.
So even as the overall markets remain weak, I’m continuing to look for bullish opportunities. It’s periods of weakness like this where you can use call options to generate substantial profits from an expected rally.
And in my unusual options activity scanner, large traders are doing just that.
Today, I’ll break down a few million-dollar bets where these traders are expecting a rally in the weeks and months ahead.
In total, we’re talking about more than $4 million on the line in just four stocks.
Let’s get started…
This Week’s Unusual Options Targets
Our first one is the smallest trade of the day, but a familiar stock. We’ve seen unusual options activity on Ford (NYSE: F) before, only for some more weakness to hit the stock.
But this one is really unique. It’s a bet that the price will rally over the next five days.
The trader bought 15,000 contracts of the September 24, 2021 $13.50 call options for $0.22 per share, or $330,000. This short-term trade will see more volatility right away, because it is sensitive to daily price swings, but has the potential for a big payday if some news helps the stock pop in quick fashion.
You can see on the chart, it is already breaking out of a downtrend. That could be what this trader is betting on to see more buying pressure send the stock higher by the end of the week.
Social media giant Twitter (NYSE: TWTR) saw some massive volume on the October 15, 2021 $60 call options. One trader spent over $1.5 million on a rally over the next month.
With the $60 calls, they spent roughly $2.61 per share for each contract.
That gives them a breakeven price of $62.61. The stock has rallied since this trade was put on last Wednesday and the options are already worth $3.75, a 43% gain in just a few days.
But they are still holding on. The open interest in the option hasn’t dropped, signaling this trader hasn’t sold yet. And I think that’s because they’re looking for this stock to climb back up to about $68 a share. That’s the high end of the wedge pattern on the chart below.
Twitter could deliver a solid triple-digit gain for this trader and not even break out of this pattern. This is one to watch as we head into October.
We had another trader scoop up 3,392 contracts of the Merck & Co. (NYSE: MRK) December 17, 2021 $75 call options for $1.85 per share — a total bet of $1.3 million.
Shares have dropped 8% in just the last three weeks. So, this trader is looking for the current weakness to let up, and for a quick bounce in the stock.
The concern here would be trying to catch a falling knife, with the stock continuing to plunge. But I use a strategy that spots these turning points in my Quick Hit Profits research service.
You can see the bars on the chart are shaded red, indicating it is lagging the market. And based on a profit radar I use, the Relative Rotation Graph, I know these stocks tend to improve and turn higher — not continue to drop. So based on my system, I like this trade.
A short-term pop could be in the cards for Merck, and this call option has them in a great position to benefit.
This next trade is one of my favorite setups — following the breakout.
This trader bought 9,000 of the Pilgrim’s Pride (Nasdaq: PPC) March 18, 2022 $28 call options. They spent $1.40 per share, which adds up to $1.2 million on this trade.
And when you look at the chart, you can see the stock is breaking out. It surged 20% last month in a single day and has held steady since then.
Now this trader is stepping in and betting on the rally to carry the stock even higher as they look to profit.
That’s all for this Monday.
Always remember these trades don’t necessarily pan out. They are intriguing trades to put on your radar, but more research is needed to make sure the risk/reward with each options trade is worth it for you.
We’ll continue to uncover big traders placing unusually large options bets each Monday here in True Options Masters.
Chad Shoop, CMT
Editor, Quick Hit Profits
Chart of the Day:
If You’re Gonna Bounce,
Now’s the Time
By Mike Merson, Managing Editor, True Options Masters
Oof, okay… Equity futures are waking up on the wrong side of the bed this Monday morning.
So, let’s zoom out on the S&P 500 Futures chart (ES1!) and see how much uglier things could get.
Futures are testing mid-term resistance levels at around the 4350 and 4370 levels, established from late July through August. We opened right on the highest support level at around 4415, then smacked right down through it.
In my view, for the market to continue to look bullish in the short term, we want ES1! to stay above 4310 through this week’s trading. If the daily candles get bid up some, and leave a long wick behind, that would be even more encouraging.
Technically, it’s not the prettiest picture. But it also helps to step back and think of what sparked this sell-off to see if it has staying power.
This all seems like a response to recent regulatory moves on real estate in China. Some Chinese real estate stocks traded down over 80% last night.
There’s a real “house of cards”-style panic bubbling up, not too unlike the subprime mortgage crisis in 2008. Is there potential for the China issue to spread to U.S. shores? Maybe. But I do think it’s less likely. U.S. institutions simply don’t have the same kind of exposure to Chinese real estate as they did to U.S. real estate in 2008.
There’s also the constant fear of the Fed’s “taper talk,” but quite frankly, there’s no way this hasn’t been priced in by now.
Chad and Mike both continue to be bullish in the face of all this. Given their combined decades of expertise, it’s hard not to join them in that position.
I even spoke to them this morning about the market action, and both believe this is just a healthy correction before another leg higher.
Managing Editor, True Options Masters
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.