Friday, May 20, 2011

May's "Trade of the Day" Reviews

Since today is May expiration, we thought we'd look back and see how the pro "Trades of the Day" did.

On April 26th, a trader sold 10,000 May $97 calls at $0.13 and bought 5,000 May $94 calls at $0.68 for a debit of $0.42 or $210,000. You can read a recap of the trade here:  TLT May $94/$97 1x2 ratio spreadThis trader killed it! TLT closed trading today at $95.32. We calculated the break even price for the spread @ $94.42 so if they held it to the close today (highly unlikely) they would have make .90 on 10k contracts or $900k.  Not a bad couple of weeks.  Huge win!

On April 19, A trader sold 4,000 May $37 puts at $0.16 and bought 4,000 May $40 puts at $0.63 for a debit of $0.47 or $188,000 in DIS. A bear vertical that didn't work out but could have been a hedge.  The toughest part about reading option prints is that you don't know if they already have a position or not.  It is interesting that after the 19th, the stock rallied 3 points.  We'll count this as a loss. 

April 13th, A trader sold 1,500 May $31 calls at $0.89 and sold 1,500 May $29 puts at $0.64 for a credit of $1.53 or $229,500 in BBY. It looks like they took some heat at first, but could have easily bot it back cheaper in the following weeks.  I think it safe to assume this was a winner.

April 12th, in SLV a trader bought 25,000 May $34 puts at $0.41, sold 50,000 May $36 puts at $0.78, and bought 25,000 May $38 puts at $1.46 for a debit of $0.31 or $775,000.  I suggest everyone look at this trade on a chart day by day.  SLV kept ripping but any smart trader would have taken off the bull vertical when it got cheap enough (can't get much cheaper!) and would have only held the bear vertical.  And then SLV cracked and the bear vertical would have worked too!  Pro trade!  (I'm speculating on how they traded it but pro traders understand risk/reward very well so I doubt I'm that far off).  Even if they didn't trade it, they had 4 days that SLV traded at the guts of the fly which they could have unwound it for a profit. 

April 11th, in TGT a trader sold 5,000 May $47 puts at $0.74 and bought 2,500 May $49 puts at $1.48 at no cost to the trader.  Obviously I don't know where they traded out of this but clearly could have been unwound for more than even money!  Another win. 

April 7th, in WMT A trader sold 8,000 May $52.50 puts at $1 and bought 8,000 May $55 calls at $0.30 for a credit of $0.70 or $560,000.  WMT closed at 55.29... trader killed it...WMT was over 56 last week too. Looking back, the trader only had two days that it moved against him.  Big win. 

March 28th, in ESV a trader bought 5,000 May $60 calls at $2.35 and bought 5,000 May $55 puts at $1.90 for a debit of $4.25 or $2,125,000.  Hard to tell here, but we'll count this one as a loss... the trader would have had to have been REALLY good to make this work.

7 trades, 5 wins, 2 losses.  If you manage your risk properly, the market is full of opportunity.  Hopefully you're starting to see why watching the option flow and learning how to read it is very important. 

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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