The Big Money is on the prowl, and it’s time for us to see where they’re setting their sights.
Following unusual options activity is an excellent way to uncover great trading ideas you never would have normally.
If I detect gobs of cash pouring into one option or another, I don’t need to know what the stock is, what the company does, or even the price action (though, as we’ll see today, that helps).
All I really need to know is that someone, somewhere, with deep pockets, has good reason to bet a small fortune on the stock doing what they expect.
That’s always worth paying attention to.
Last week was overall bullish for the market, with the S&P 500 closing higher for four straight days.
I expect this bullish momentum to continue overall, but we can still expect the market to be choppy this week.
So I wanted to look at one bullish trade and one bearish trade from last week, and show you what I like about each.
This week’s big money players have over $7 million total on the line…
Let’s dive in.
2 Very Different Plays on a Bounce
First up, the bullish play.
This trader took a buy-the-dip approach.
They bought $4.2 million of the RingCentral (RNG) June 17, 2022 $115 call options at $16.90.
Even though the communication company’s stock was up 18% last week alone, it’s just back to where it was in early March (over 70% down from its all-time high). So there’s still plenty of room to the upside that they’re betting on.
You can see at the bottom, that it just came out of the lagging quadrant and is now in the improving quadrant based on the Profit Radar.
Remember that, because I want to come back to it in a second.
Now, let’s look at our bearish trade…
This one is on iRobot (IRBT), the robot vacuuming company.
One trader scooped up $3 million of the May 20, 2022 $60 put options at $6.10.
Looking for a 10% drop, it goes against the grain of what we saw last week. Even though the stock settled up just a couple of percent, from the lows on Tuesday to the highs on Friday, the stock had rallied 10%.
This trader is betting that run is done.
Both RNG and IRBT are in a similar boat. They each had nice runs last week, but didn’t really get back to any meaningful highs. Just volatile stocks enjoying a bounce amid a choppy market.
So, how can I like both of these trades? The difference lies with my Profit Radar.
My Profit Radar Likes These Big Money Plays
See, even though IRBT is in the lagging quadrant, the direction of the stock on the Profit Radar is still heading lower. That’s not a good sign.
Meanwhile, RNG is set to breakout to the upside, based on the natural rotation we see into the “improving” quadrant.
One is still showing weakness (IRBT) and one is showing strength (RNG). All based on the Profit Radar.
And the traders are playing them perfectly, buying puts on IRBT and calls on RNG.
I don’t always agree with the big money trades that pop up, but I’m on board with the action in these two stocks.
Chad Shoop, CMT
Editor, Quick Hit Profits
Chart of the Day:
This Hasn’t Happened in Years
By Mike Merson, Managing Editor, True Options Masters
Today, something truly unusual…
Longtime readers are familiar with the Volatility Index (VIX) buy signal. When the VIX closes above its upper Bollinger Band, and then back inside the band, it’s a safe bet that stocks are going to rally for the short term.
But last week the VIX closed BELOW its lower Bollinger Band and then closed back inside it the next trading day.
Logically, that means we should expect a rise in volatility this week. And looking back at other times this happened, the VIX did indeed rally after this specific setup.
But the thing is, this happens extremely rarely. Going back 5 years, I only counted a handful of times this setup occurred. And each time, the rises in volatility were mild.
It’s possible that we have another volatile week, especially where headlines are concerned. But I wouldn’t put much stock into this technical signal on its own. It really works much better as a buy signal than a sell signal.
Managing Editor, True Options Masters