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How to Benefit from Daily Trading Order Flow

How to Benefit from Daily Trading Order Flow
Track the Biggest Trades in the Options World
Four Takeaways

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How to Benefit from Daily Trading Order Flow

Trading and investing in the first month of 2016 was very similar to most of 2015; it wasn’t so much about making money, but rather avoiding the landmines that littered the investing landscape and seriously damaged many portfolios.

Traders understand the risks and are willing to take big losses if they are betting on a biotech company that’s about to get approval on a controversial drug, or betting on earnings in a volatile stock like Amazon (AMZN).

But most investors were not prepared for the big losses in safe stocks such as Wal-Mart (WMT) or Exxon Mobil (XOM).

There were, however, some savvy investors who saw the cracks under the market’s surface and began raising cash ahead of the big washout that started in 2016. Those investors patiently waited for the market to fall apart so they could pick up stocks at lower prices.

As the market was unwinding, the question I often heard from subscribers of Cabot Options Trader and Cabot Options Trader Pro, was “what stocks were on your watch list to buy?” My answer was always the same: look at the Daily Order Flow Reading email that I send every day for the best ideas on what to short and what to buy.

Let me tell you about my Daily Order Flow Reading emails.

Every morning, subscribers of Cabot Options Trader and Cabot Options Trader Pro receive my list of the biggest trades in the options world from the previous day. These are trades made by the top hedge funds in the world and well-known traders such as Warren Buffett, Carl Icahn and Bill Ackman. It’s essentially a look inside the portfolios of many of the top investing minds, months before the positions are made public.

Subscribers to Cabot Options Trader and Cabot Options Trader Pro use this Daily Order Flow Reading list for many purposes. Some take positions based on the trades in the list. Others use it to get a feel for market tone and which sectors the smart money is betting on. And others study the list of trades to become a better trader/investor.

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Track the Biggest Trades in the Options World

As an example, here is my Daily Order Flow list from Friday January 29 with my commentary on the trades.

Bullish Order Flow:

Buyer of 5,000 Gilead (GILD) January 100 Calls (exp. 2017) for $5.10 (stock was hurt on competition issues. Earnings February 2 after the market close)

Buyer of 3,000 PayPal (PYPL) February 35 Calls for $1.10 (stock recently beat earnings and popped higher by 8%)

Buyer of 10,000 Yahoo! (YHOO) February 30 Calls for $1.00 (earnings 2/2)

Buyer of 10,000 Time Warner (TWX) March 75 Calls for $1.97 (sold out of 20,000 February 75 Calls to close at same time)

Buyer of 25,000/50,000 American Airlines (AAL) August 38/45 1x2 Call Spreads (targeting a move to 45. Starting to see smart money get into airlines)

Buyer of 25,000/50,000 Delta Airlines (DAL) September 44/50 1x2 Call Spreads (targeting a move to 50. Same strategy as AAL 1x2)

Buyer of 5,000 Wal-Mart (WMT) February 66 Calls for $1.34 (stock up 8% year-to-date)

Buyer of 3,000 Nvidia (NVDA) February 29 Calls for $1.40 (former market leader from 2015)

Buyer of 10,000 Baidu (BIDU) June 210/230 Bull Call Spreads for $2.13 (stock has been hurt by China’s market fall, but could be a homerun if the stock approaches former highs)

Buyer of 5,000 Charles Schwab (SCHW) February 26 Calls for $0.70 (brokers have been hit hard in 2016)

Buyer of 11,000 eBay (EBAY) February 23.50 Calls for $0.65 (stock was recently hit on earnings)

Bearish Order Flow:

Buyer of 5,000 Schlumberger (SLB) March 75 Puts for $5.20 (recently reported good earnings)
Buyer of 3,500 EOG Resources (EOG) February 70 Puts for $3.20 (oil stock that has bounced back in the last week)
Buyer of 3,000 Cirrus Logic (CRUS) June 34 Puts for $3.90 (the stock recently ripped higher on mixed earnings)

Here are my takeaways and thoughts from this list:

• Order flow was very bullish last Friday, with 11 bullish trades and three bearish trades. This isn’t surprising because the S&P 500 was up 2.5% that day, and many traders were betting that the market could be ready to rally.

• There were potential earnings trades in Gilead Sciences (GILD) and Yahoo! (YHOO). Typically I don’t follow into similar trades when the stocks are heading into earnings as it could just be a trader “taking a shot” into the event. However, I include these trades on my list because my Cabot readers may also want to play earnings.

• What stood out to me most were the similar trades in American Airlines (AAL) and Delta Airlines (DAL). We often see rotation into a sector via options before the sector makes a move. And these were two very large trades in a sector that has struggled.

• The two bearish trades in oil stocks SLB and EOG tell me that some traders may not be believing the recent recovery from the lows in this beaten down sector.

As my list shows, if you’re looking for trading ideas, my Daily Order Flow Reading list provides plenty of ideas. And in this volatile market, getting a daily look at the trading by the biggest and brightest traders in the world can be a significant advantage.

Your guide to successful options trading,

Jacob Mintz
Chief Analyst, Cabot Options Trader and Cabot Options Trader Pro

Cabot Editor