following elephant footprints

J

jim leahy

Active member
i'm talking about unusual options activity, not actual elephant hunting. this past april someone
bought 21,000 jul 25 calls in symc. this is a very large trade for symantec. at the time symc was trading
around 23.5. the calls were trading around $1.16. earnings were in may and the stock cratered so it
likely wasn't an earnings trade. on july 3rd, broadcom announced they were in talks to buy symc.
the stock immediately jumped to over $25. (the deal has since been diluted)

on the 14th of this month someone traded a large spy risk-reversal, buying 110,000 oct 315/320 call spread,
and selling 11,000 oct 275/270 put spread. (you can still get in on this one).
trades like these happen frequently and they usually have 2 characteristics: 1. there's usually a lot of
money at risk, often hundreds of thousands to millions of dollars, and 2. they're usually low probability
trades, based on the deltas. the traders likely know something, or think they know something that
gives them an edge.

a few years ago i started tracking some of the large trades i read about. i remember the success rate
of the ones i recorded was about 50% (half made money, half lost) but i didn't record the profits
and losses. a lot of the trades were longer term and past my attention span.

there are several services that offer alerts on unusual options activity. does anyone have experience
with any of them? if so, can you comment on their track record?
 
I am always skeptical of these announcements I hear them almost daily on CNBC but as you mentioned I don't have the attention span to follow them
The problem is you don't really know the reason behind most of them
It could be just offsetting an opposite position or maybe it's just a rolling trade
The other thing is there is no announcement if the trade worked or not so you don't know if the trade was later on reversed or took profits early so a 50% win/loss rate is about right
Another thing is you don't know if the trade is hedged in some other way so even if the trade doesn't work out it may not be a big loss for them bot for someone who got in on the same trade and did not get out or have something else in the portfolio it may out work out as well
I prefer having small steady gains over 50/50 shot I could go to Vegas if I wanted to do that
 
status1 said:
The problem is you don't really know the reason behind most of them
It could be just offsetting an opposite position or maybe it's just a rolling trade
The other thing is there is no announcement if the trade worked or not so you don't know if the trade was later on reversed or took profits early so a 50% win/loss rate is about right
Another thing is you don't know if the trade is hedged in some other way so even if the trade doesn't work out it may not be a big loss for them bot for someone who got in on the same trade and did not get out or have something else in the portfolio it may out work out as well
...
Click to expand...

all true, but that contributes to why 50% of the trades failed in my study.
also with further research you can get a reasonable answer to a lot of the
uncertainties of the trade. for example, the volume shows up in the open interest
the next day so you can track if the trade gets closed. you can never tell if it's a hedge
or not but regardless, it's a lot of money at risk so someone is willing to take the bet
on it working.

as an alternative to subscribing to an alert service, for those willing to put in the
effort and if you use thinkorswim, you can do a scan for high volume options.
you'll get a lot of the usual suspects, like spy, qqq, and a few futues options,
but the number of scan hits can be reasonable. i used 10,000 for the min volume
and got in the order of 100 to 120 or so. you'll get multiple strikes for a lot of the hits.
you then select a few of the candidates that interest you and go to the time and
sales list on the analyze tab. again you can filter out the small stuff to limit
the list. you'll see the large trades. you'll be able to see if it's a spread by looking
at the timestamp and you can mostly tell if it's a buy or sell by looking at the sale price
relative the the bid/ask prices at the time of the trade.

on the scan i ran tonight i found very large trades in kre and xlf. the kre trade looks
like some sort of diagonal hedge consisting of 4 put legs, since they were all traded
at the same second. the xlf trade is a standard put spread. some big money is bearish
on the financial sector.
 
Sure you can do a lot of research to see the big trades but I am not sure if anyone is willing to follow blindly in the footsteps
For the big hedge funds a couple of million on a trade could be just a 1-2% of their portfolio so it's not big loss for them and probably have people watching the market all day and can take action before any big changes
For a small retail trader with a small account I am not sure how much they would be willing to risk to make it worthwhile plus they may not be watching the market all day and may miss an opportunity to make the trade to get in or to offset the trade or to get out
They could make a big trade to get in so you follow them than they may sell or hedge of a part of it so it may not look like a big footprint so you will not be able to detect it and think they are still in the trade while they made some changes that would make any losses even less significant meanwhile the small trader is waiting for the trade to be closed that may never come
It's risky enough at 50% I think it's even more risky as a follower as you cannot make the exact trades so your results may vary Sure f you want a gamble 1-2% of your account on a 50% trade you could do that I just think that there are better more reliable trades available
 
Anyone care to get in on AMD based on a call volume and unusual trading activity ?
I heard one trade today on CNBC and you can view it if you have TOS
Supposedly there was 4 times the volume of calls compared to the puts in the 32 strike that expires this Aug 30th
There was 75k contracts traded earlier in the day at 30 cents but after hours I see it at 18 cents probably due to the volatility getting crushed but there are still a little over 9K in open interest
You have to have a strong stomach to go through the ups and downs if you really believe it will go over $32
 
93,000 contracts at the end of the day. that's a lot for a non-earnings day. but the largest
single trade i saw at that strike was 400 contracts. that doesn't mean some large trader didn't
blast small trades all day long, though. i did see a large straddle on the 23rd, at the september
monthly 32 strike. i don't remember the number of contracts but it was substantially
larger than the 10,000 minimum i use in my scan.

at $.18 i'll skip some lattes the rest of the week and buy a few contracts.
 
Maybe a lot of other traders thought the same thing They saw someone making a big bet and they followed the heard and now the open interest is 3 times as much as yesterday while the price is even lower
Meanwhile the original trader who made the big bet could have hedged off his trade by doing a risk reversal on the put side and probably no one is aware of that if he did it in small trades
I am not sure I believe someone would toss out 12k without having some kind of protection to minimize the losses or having some other trades in place
Other smaller traders probably see it as a lottery ticket and don't mind betting 1 or 2 contracts
 
Here is the next one from CNBC
This one is on XRT The volume was 10x the average and there was a trader who placed a 20000 contract for 25 cents for the Sep 6 expiration I think this has a better chance of making it because of the longer time and it's closer to the money but of course the price already went up so you may have missed it if you did not get in at the same time

How come no one got in on COST ? There was a big opening in China with shoppers waiting in line and the stock went up about 16 points in 2 days Last Friday someone could have got in on aug 30 280 strike for about 1 dollar and now it's worth $13 that would have been a nice trade
 
i saw the xrt trade in a scan early this morning. it was the 40 call; i didn't do it. i also didn't do
the amd trade. most of the 93,000 volume monday were day trades. only 28,000 ended up
in the open interest. probably a bunch of computer bots trading among themselves. that
trade didn't fit my profile for large trades.
 
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