How Insider Trading Leads the Way to Profits
What is Order Flow Reading?
Trades that can Double, Triple your Money
It’s no secret that from time to time insider information is illegally used to profit in the stock market. In fact, Ophir Gottlieb, the creator of a professional trading tool named Livevol, completed an interesting study of option volumes in takeover stocks. The basic takeaway from his study is that the use of options to garner financial gains through the use of private/insider information is widespread.
For the study, Livevol took a look at the top 100 takeovers from January 1, 2012 to August 2012, comparing the average option volume six months prior to the takeover to the average option volume five days before the event.
Their results were very interesting:
Average call volume six months prior to deal 1,313 calls
Average call volume five days prior to deal 2,239 calls
Difference 71%
So the call option volume increased 71% between six months prior to the deal and five days prior to the deal—a good illustration of why I occasionally recommend Order Flow Reading trades.
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What is Order Flow Reading?
Order Flow Reading entails buying options that the largest options traders are buying, and it’s the most consistently successful strategy I’ve used as chief analyst of Cabot Options Trader.
These are trades put on by the biggest and smartest hedge funds and traders in the world. Many millions of dollars are at risk as traders buy or sell 100 times or 1,000 times normal daily call and put volumes.
Once I’ve identified a large trade, I look into the details to see if I like the risk/reward of following the trade. And if I do, I give my readers exact instructions.
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Here are some trades that I initiated using my Order Flow Reading strategy:
SandRidge (SD) April 5 Put 34% profit
United Continental (UAL) Bear Put Spread 57% profit
Huntsman (HUN) Bull Call Spread 8.34% profit
Suncor Energy (SU) August 31 Call 50.91% profit
SandRidge (SD) January 5 Call 32.91% profit
Endeavour International (END) January 5 Call 23.67% profit
SandRidge (SD) January 6 Call 19.64% profit
Baker Hughes (BHI) April 52.5 Call Still open
As these examples show, Order Flow Trades don’t only work for takeovers.
Now here’s some examples of Order Flow Reading trades that we were unable to enter:
In August, I began picking up on large Microsoft (MSFT) call buying. I was all set to initiate a similar position when the Nasdaq had technology issues that shut it down for virtually the whole day. It’s unfortunate that we were unable to take a position because shortly thereafter, it was announced that Microsoft CEO Steve Ballmer would leave the company in the next 12 months, and the stock popped nearly three dollars. I’m not insinuating that anyone was trading on insider information, but it’s hard to believe that the call buying was a pure coincidence.
Last week, my scanner picked up on large Talisman Energy (TLM) call buying. I sent out an alert to follow the large call buyer into a trade but we missed my price. Not more than a couple of days later, our position would have been an over 100% winner when it was made public that Carl Icahn had initiated an approximate 61 million-share position in Talisman and the stock popped nearly 10%.
It’s not easy to use Order Flow Reading, and I’m certain that I’ll miss on some Order Flow Reading trades as options can be used in many ways, including hedging. (That’s why I always recommend that my readers allocate a similar amount to each trade.) But it only takes a couple of correct trades using Order Flow Reading to find a takeover or news stock and double or triple your money.
Your guide to successful options trading,
Jacob Mintz
Expert Analyst, Cabot Options Trader
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