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OptionSIZZLE is created to help you better understand and become more familiar with options and what the professional traders are doing everyday in the market and provide effective options trading strategies to allow you to trade better and trade smarter. We have found over the years some of the... More
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  • Was This 2 Million Dollar Options Trade Ethical? 2 comments
    Jun 4, 2014 5:17 PM

    Trying to make money in the financial markets is tough and uneventful most of the time…a lot of the time you're just sitting around…trying to generate ideas or wait for something to happen during the week.

    By Friday afternoon…things start to slow down…and investors and traders start thinking about the weekend and their plans.

    But believe it or not…some of the best opportunities happen on a Friday…right before the close.

    It's almost like well informed investors are thinking…let's sneak these orders in…while everyone is daydreaming about the weekend.

    This is what actually caught the media's attention of myself and OptionSIZZLE in December 2009, when I provided my private clients and those that followed me on social media, a very well timed New York Community Bank buyer of 8,933 calls to follow along side them on that Friday and make very nice profits.

    Just two hours later, after the market closed - we all learned just how "timely" those call options were. The FDIC announced that New York Community Bank was taking over most of the assets in Ohio's AmTrust Bank, with $12 billion in assets.

    The lucky investor or investors who bought the 8,933 options were sitting on a tidy profit of $800,000-plus - not a bad return over the weekend. As to this day, I don't think those "timely" trades were ever investigated.

    The thing is, this kind of activity still occurs and if you know how to spot it, you can possible use it to benefit.

    A couple of weeks ago I noticed some activity in B/E Aerospace Inc. (NASDAQ:BEAV). It was the type of options activity that screamed that something was going to happen…soon…real soon.

    Backdrop

    On April 30, 2014, I saw 3,206 BEAV May $90 calls get purchased on the offer side for $0.70. To put this into perspective…at the time, BEAV traded around 600 option contracts a day.

    And on this day there were over 5,100 options traded….over 4,600 of them being calls. The stock was trading around $87.77 a share.

    That's over 8x usual options volume!

    Hello BEAV…you're the newest member of my watch list.

    Fast-Forward Two Days

    On Friday, May 2, 2014…I start to see a flurry of calling buying in BEAV…right before the close. And yes…the May $90 calls were the soup du jour.

    3:48 pm eastern time: a sweep was detected…a buyer came in and bought around 1,000 May $90 calls for $1.05

    3:50 pm eastern time: close to 120 contracts are bought for $1.15

    3:51 pm eastern time: 186 contracts bought for $1.20

    3:52 pm eastern time: around 190 contracts are bought for $1.25

    3:57 pm eastern time: 238 contracts are bought for $1.50

    Good for 3x usual options volume for the day.

    Now, even if you're not following the news on this company (and I wasn't at the time)…you would have to think something is brewing.

    Why was this so interesting?

    As noted, there was a massive buyer on Wed, April 30th…those options that were bought for $0.70 doubled by Friday.

    The stock is trading at $88.96…with two weeks till expiration.

    As you know, these are OTM options…and as we get closer to expiration, time decay will start sucking out the premium of these options.

    So we have a trader who is long a boatload of May $90 calls…with ZERO intrinsic value…and sitting on massive profits.
    Instead of taking profits…we see a flurry of aggressive buying heading into the close.

    How aggressive?

    Well, 96% of the options traded on the May $90 call strikes were "lifting offers." This means that the traders were willing to pay the ask price on 96% of the contracts traded on that strike.

    Lucky Guess?

    On Sunday, May 4, 2014, BEAV announced that they engaged in the process of exploring "strategic alternatives." When Monday rolled around, the stock traded north of $98 per share at one point during the day.

    It makes sense that the trader wasn't happy with a double…those options they bought on Wednesday for $0.70 were trading north of $9.00!

    For those counting score at home:

    That's $9.00 - $0.70= $8.30

    8.30 x 3,206 = 26,609.80

    26,609.80 x 100 (each contract leverages 100 shares) = $2,660,980 profit

    Some of you might be thinking…no one is that good…that they had to of been tipped off. Again, that's not my concern…that's up to the regulators to decide. Just like pilot fish do….. with swimming along side the sharks…we have the privilege of participating in the same trades.

    Because every order that is placed on the exchange…must be reported.

    I've been watching this type of order flow for many years…and I'd like to think that I'm pretty good at picking out needles in a haystack.

    If you'd like to learn more about my process, make sure to pick up my Free Report, that will show you how you can uncover Wall Street's most lucrative and well timed trades, right now!

    I think you'll really like it.

    What do you guys and gals think…was this trader tipped off or were they just good at what they do?

    I'll be hanging out in the comments section below to hear your thoughts.

    blog-cta-report

    Join For Free To Receive My Ideas & Market Commentary I Only Share In Email

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (2)
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  • Mark.ca
    , contributor
    Comments (208) | Send Message
     
    Inside job.
    4 Jun 2014, 05:55 PM Reply Like
  • OptionSIZZLE
    , contributor
    Comments (8) | Send Message
     
    Author’s reply » Excellent :)
    5 Jun 2014, 08:17 PM Reply Like
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