I recently noticed some seemingly ludicrous options trading activity in AMC Entertainment (AMC) in which a buyer was making significant out-of-the-money call buys. If you’ve been following the so-called “meme” stocks at all, you may have an idea where this is headed.
At the time, I took the opportunity to highlight that trade to some of my subscribers, and sent them this:
“Here is the most ludicrous of the call buys:
“Buyer of 35,000 AMC June 40 Calls for $1.50 – Stock at 18
“This trader would need AMC to rally 22 points in the next four weeks for these calls to finish in-the-money.
“While I think this scenario is very unlikely, we have seen AMC, GME, RKT, FUBO etc. go crazy in the past, so anything is possible.”
Boy oh boy was I wrong that this call buy was ludicrous. Since then, AMC has rallied from 18 to a high of 72! (Predictably, it’s well off those levels now, although not as far off as you might think.)
At that 72 top, these June 40 calls originally purchased for $1.50, were worth $37, or a potential profit of $3,550 per call purchased … or a net profit of $124,250,000. That isn’t a misprint. This trader made $124 million in four trading days!
And while we didn’t get involved with this trade (unfortunately), tracking unusual option activity is the number one strategy we use, allowing us to lock in profits of over 1,100% in Peloton (PTON), 397% in Freeport McMoran (FCX) and over 350% in General Motors (GM) and Sonos (SONO), all within the last year.
How My Unusual Options Activity Scanner Works
My most successful strategy throughout my two-decade options trading career, using my unusual options activity scanner helps me find the next hot stock. Here’s how it works.
The first—and perhaps biggest—challenge of options trading is understanding what an option is.
An option is a contract giving you the right, but not the obligation, to buy or sell a specific security at a specific price over a specific period of time. After that period of time has elapsed (known as “expiration day”), the option ceases to exist.
Call options give you the right to buy the security.
Put options give you the right to sell the security.
There are numerous types of options trades. Depending on which method you choose, options trading can be used to hedge a portfolio, create yield or gain significant market exposure and returns with little capital risk.
When my proprietary options screener alerts me to a trader buying 10,000 calls and risking many millions of dollars, my alarm bells go off. Who is buying these calls, and why is he taking such a big position? Does he have insider information?
Warren Buffett, Carl Icahn and Bill Ackman are just a few names among the many hedge funds and institutions known for using options to build positions.
As noted above, this strategy of following hedge funds and institutions into trades has been wildly successful for my subscribers and my portfolio, and I encourage you to consider options trading for yourself.
Is options trading part of your investing strategy?