It is always interesting to look at high volumes for individual option legs and compare them with their latest open interest. If these legs have similar volume, they can be combined to form a known option strategy.
Today for example, 2202 contracts of SPXW Jul11 $3730 puts were sold vs. the prior day’s open interest of 26 contracts. Concurrently, 2200 contracts of SPXW Jul11 $3620 puts were purchased vs. the prior day’s open interest of 36 contracts. This would imply that a Bull Put Credit Spread was sold.
If we assume that a hedge fund, institution, or hi-net worth trader was behind this transaction at the noted credit, they are taking on $19.657 million in risk to earn $4.543 million in profit. Break even would be SPX => $3709.35 on July 11th expiry.
That’s a big bet - let’s call it a “whale” trade.
Other potential whale trades today were as follows:
1200 x SPXW Jul11 $3740/3630 Bull Put Credit Spreads for an assumed risk of $10.53 million and a potential profit of $2.67 million.
9000 x QQQ Jul22 $283/297 Bull Call Debit Spreads for an assumed risk of $5.724 million and a potential profit of $6.876 million.
2000 x IWM Jul29 $166/156 Bull Put Credit Spreads for an assumed risk of $1.51 million and a potential profit of $490,000.
The only bearish whale trade today was on ASHR, Xtrackers Hvst CSI 3000 China A-Shs ETF:
2770 x ASHR Jul08 $35.5/34.50 Bear Call Credit Spreads for an assumed risk of $243,760 and a potential profit of $33,240.
What does this mean?
We don’t know for sure if the above were single trader transactions. We can only assume so. However, one could speculate that if these trades are as assumed, they were entered based on complex higher probability analysis by highly paid quant’s and money managers with track records of success. The four bullish trades noted above would suggest that up to four individual traders believe the market has bottomed and will at least stay above the SPX $3709 area.
Use this info as you see fit. Do your own due diligence if you decide to “piggyback” onto this prognosis. Personally, I am forever bullearish and more focused on the upcoming earnings season.
Stay tuned on Sunday for my next post on “The Anatomy of 24 Hour Earnings Play with Options.”
Research for this post was obtained from Toms Option Tools.
Key statement in my post - I’m « bullearish ». I find it fascinating to watch what whales do if I can find them. But I never (repeat - I never) follow other traders unless I have full visibility / understanding of what they are doing. Frankly, the underlying goal of the Green Goose Trader newsletter and alerts is to provide this transparency and enough info for its premium subscribers to do their own due diligence.
The way I see volume is someone bought means someone sold it too. So it is hard to see which side they are betting on which is why I don’t use volume indicator in my trading strategy but look at the momentum and which price most of contracts traded at. Someone also told me how direction can change based on large volume followed by small volumes. At this point, I am expecting another 10% - 15% downside since bad news on inventory issues are out there but media is not pounding on it. I think we are in the phase where people are rushing in to buy large cost items (house cars etc) before interest rate goes higher. Next phase is where people probably won’t be able to spend money on large cost items. I also hear a lot of lay off happening now too but it is not on the news yet. My gut feeling says the perfect storm of brewing.
My great teacher always remind me the truth will tell after it happens. So let’s see if this is the bottom or more downside.