Let’s face it, a lot of us have invested a lot of time, energy and money into the market… and lost.
We tend to question ourselves, what we’re doing wrong, and over-examine what’s keeping us from reaching our goals.
For many, the odds are stacked against them.
What if I told you there’s a way to predict explosive moves in stocks and options days before it occurs?
If that perks your interest, then you’re going to learn the secret indicator a few professional traders know to use.
The fact is there’s a 50-50 chance of being right with stocks. There’s a 33% chance of being right with options.
But there’s a very simple way to put those odds in your favor.
You simply follow the unusual options activity, allowing you to identify moves before they actually occur.
Options Give Traders The Leverage That Typical Stocks Do Not
Instead of tying up a large sum of capital, traders can actually control the same amount of stock with an option at
a tenth of the price.
Billionaires and hedge fund managers alike – think Carl Icahn and Bill Ackman – are quickly realizing that explosive benefit, adding the strategy to their trading arsenal.
Oftentimes, they may employ options because of stock liquidity, leverage or disguise.
Trends are created in stocks…
Investment banks, the ultra-wealthy, financiers, pensions, and mutual funds start most of the trends you see everyday. These are the folks, the groups, the investors referred to as the “smart money.”
They’re the ones “in the know” before the rest of us, which begs the question:
If they’re so “smart,” why don’t they just buy the stock outright with their privileged information?
There are three reasons.
For us to profit from those “smart money” tactics, we need to identify smart money tactics. Is the smart money buying or selling an option? What direction are they forecasting?
Knowing that information alone offers a major unveil – or trader transparency.
It literally gives us a front row seat, putting us ahead of the average herd…
Today, I Want To Share With You What I’ve Uncovered And Learned After Years Of Options Trading.
Much like us, good options traders use leverage to make profits with minimal capital.
We – and they — succeed by knowing where the smart money is flowing, applying needed technical analysis, filtering ideas, finding the rewarding trades, and quieting the noise.
Take Bear Stearns (BSC), for example.
People Will Lie, But Numbers And Money Don’t
In early March 2008, Bear Stearns’ put activity exploded, indicating potential bankruptcy.
By March 12, 2008, the CEO told millions of CNBC viewers that all was well…
Shares traded right around $64 at the time.
But options volume told a different story.
All of a sudden, the smart money rushed to buy puts that were $25 out of the money (OTM).
These folks knew as well as I did that the CEO blatantly and foolishly lied about the company’s underlying issues.
And we were all right.
Days later, Bear Stearns would plunge to $2 a share, as underlying issues hit the headlines.
I was managing accounts for private clients at the time.
The second I noticed this very odd put buying activity, I alerted clients to the activity.
Shortly thereafter, I cumulatively netted a six-figure income…
I saw the same thing happen with Lehman Brothers months later, shortly before they filed for Chapter 11 bankruptcy.
That’s proof you can’t play games with the options markets. These folks are the Street pros… the smart money… the smart retail investors. They know what’s really happening.
To profit, all you have to do is tap into that knowledge…
Unusual option activity often signals a potential large move.
That’s because of insider action. Insiders – and those in the know– are acting on information they have. They’re acting on a “head’s up.”
And – as we proved with Bear Stearns – this can lead to very lucrative rewards if you can find the action.
If you want to make big money trading options, all you have to do is follow the big time money.
Here’s My Hot Money Options Trade Method On Tracking This Activity:
Option Volume – Find options with increases in call or put activity. Up to three times the average daily volume is considered noteworthy. Also look for the strike price and month where the activity is taking place. If it is the current month, those in the know could be looking for something to happen very quickly. Activity taking place further could take a bit more time to develop.
Another key point is the volume of the interest. Simply look for option activity bought in blocks of 100 or more. That size is a “tell” the options are being bought by an institutional trader… not by individual investors, like you and I.
Volatility – It is the fluctuation of what the market thinks the option can move in price. Higher changes in volatility show that buyers are willing to pay more. It can be a sign of possible price movements running higher than usual. Take a look at the strike in which the volatility is changing and see if there is larger than normal
volume causing the increase. That is likely is to be due to higher demand.
The Open Interest – When considering an option, look at which strike has the largest open interest. This value means that this strike will be the most liquid and where prices could gravitate.
Follow the News – Good traders know what is going on in their industry. They are also good at noticing implications that certain news items might have on the stock market. Anybody can jump on a stock tip if it is mentioned on the CNN morning news, but a good trader is someone who can find a consequential link between two seemingly separate incidences. For example, suppose that Mr. XYZ has recently retired from his position as CEO at BCD to pursue other interests. In a tiny little square inch of a newspaper article you notice that GHI is considering offers from
Take a look at Sepractor from September 2009.
Once I learned of a 400% increase in call buying activity, I was on it.
Take a look at options activity minutes before news hit that Dainippon Sumitomo Pharma was putting in a tender offer to buy Sepracor.
Even though the initial negotiations would have been confidential, some one made a “calculated” guess that something like this was about to happen. That someone put in a large order to buy the options for just $0.10 — four minutes before the announcement was made.
(Sepracor Option Time and Sales for November 20 Calls)
The call option for $0.10 granted the buyer the right to buy stock in Sepracor for $20 per share.
Once the deal was announced to buy the remaining Sepractor shares at $23 in the tender offer, that call buyer was sitting on a $2.90 profit ($3.00 – the amount paid for the call).
Something else to consider is international news.
We live in a global village. What happens to people in Africa can — and does — impact us here. So don’t discount the impact that events overseas can have on your current and potential investments.
Consider The Spillover Effect – Look for spillover into other strike prices. Market makers typically take the other side of the trade. They sell calls to facilitate the transaction and then immediately offset their position with the underlying stock to remain delta neutral. That would mean buying stock against the calls they sold. If
they believe that buying is a result of smart money, they may hedge using other options, resulting in a spillover into the purchase of other calls at different strike prices.
With about $20,000 risked, that buyer just made $550,000 in mere minutes. Perfect timing…
TERRA INDUSTRIES (TRA)
Terra Industries is no stranger to takeover target news…
Most of the time, though, the takeover speculation flops. Nothing comes of it.
But look at what happened on February 9, 2010.
A trader bought February 37 calls for just 12 cents – an odd buy – as the underlying stock traded at $32. Any trader buying a 37 strike on a $32 stock with immediate-term expiration would be considered nuts. But it was obvious that some one was in the know.
A week later, Yarra International announced it would put in an offer for Terra Industries.
The option buyer — who just spent $48,000 on a “nutsy” move — now stood to make $1.64 million on the trade.
(Terra February and March Option Chain)
MYLAN INC. (MYL)
Mylan Inc. is a global generic and specialty pharmaceuticals company headquartered in Cecil Township, Pennsylvania.
On November 21, 2013, I spotted unusual activity in the Mylan 44 calls at 38 cents.
Take a look at the options chain. The volume on that day exceeded open interest… which is exactly what I like to see.
(Mylan Inc., November 21, 2013 Trading Day)
Five days later, those same 44 calls traded at $1.30 – a 242% return in no time at all.
(Mylan Inc. November 26, 2013 Trading Day)
Let’s examine the chart of the underlying stock.
On November 21, a “tell” was absent. Prices closed virtually unchanged on the day.
Two days later, as the stock returns a “whopping” 1% move to the upside, our calls are up nearly 250%.
By November 25, 2013, the company announced it agreed to settle and dismiss pending patent litigation involving Copaxone® (glatiramer acetate) in the United Kingdom, the Netherlands and France with Teva Pharmaceuticals.
On the very same day, Mylan announced that partner – Biocon – received approval for a Mylan-Biocon trastuzumab product from the Drug Controller General of India.
After putting this all together, it was obvious that these buyers of calls (for about $150,000) were positioning ahead of this news.
This case study strengthens evidence that unusual options activity really is a precursor to movements in the market. These are the movements traders need to pick up on, utilize, and profit from.
No Form Of Investment Is Ever Guaranteed
There will be some transactions that result in monetary losses. That fact applies to even the most gifted of traders.
The most effective way to reduce your risk or potential loss is to be well educated. Know the methods the pros use.
Know how the seasoned pros tick. These are the people that make their living from trading options. They know their business. They know what to watch.
And they profit from that knowledge time and time again.
Once you understand the “game,” you begin to unveil big moves in the works. I typically come across at least over 100 potential moves a day.
In short, options trading activity is a leading indicator of future price movement in a stock.
And if you know how to track it – as we’ve done for years – you can easily rake in impressive returns in no time at all. With my proprietary trading strategy, I’ve shown readers – beginners and novices alike – exactly how to profit from that activity for years.
Options activity can provide a tip off that something big is about to happen.
And if you’re in the right place at the right time, you can greatly enhance your chance of success and profits.
Now Here’s What To Do Next
This is were you decide if you believe in the saying, where there’s smoke, there’s fire.
If you believe that following the money trail will provide you more profitable trades, then I’ve created a special service that provides exactly that.