A Potential 24% Gain In Two Months…
One of my guilty pleasures lately has been the new hit series on Showtime, “Billions.” The show is about a powerful hedge fund billionaire, Bobby Axelrod, who has more than a few dark secrets. One of them is that he and his associates are playing fast and loose with the law and raking in — you guessed it — billions of dollars in the process.
The show is full of high-tension moments, of course. But there are a few of us around the StreetAuthority office who can’t help but snicker when characters on the show describe the actual trades made by the fictional hedge fund, and why they place them. The show’s writers, as well as the rest of the financial media it seems, would have you believe that it takes some sort of “insider information” or “hot tip” to truly make the big bucks on Wall Street.
#-ad_banner-#But in my experience, that just ain’t so.
That’s not to say, however, that whenever a big fish makes a bet on a particular stock we shouldn’t investigate further and possibly go along for the ride
My colleague Jared Levy agrees.
In a recent issue of Profit Amplifier , he told readers about a staggering $5.5 million options bet made by a mysterious trader — and how he and his premium subscribers could use this information to make an even better trade that could return up to 24% in just 74 days.
You see, since one option contract controls 100 shares of stock, buying options is one of the easiest ways to quickly, quietly control a lot of shares with a relatively small amount of capital. That’s why when a single trader bought 30,000 contracts for Delta Airlines (NYSE: DAL), Jared took notice.
Specifically, the trader bought May $50 calls on Delta for $1.85 each (a cost of $185 per contract). And 30,000 contracts means this “mystery buyer” now controls 3 million shares of the stock.
Here’s what Jared had to say:
|I won’t lie; it was the sheer number of dollars involved in the trade that initially caught my attention. But as I looked over the details, I found several other characteristics that made this trade even more interesting: |
1. If DAL isn’t trading above $50 when the options expire, the calls will be worth $0.
2. The trade doesn’t break even until DAL reaches $51.85, about 9% higher than current prices at $47.40. Unless the trader thought shares were going to explode to the upside, it would have been better to buy the stock straight out, which would generate a profit even if the stock saw a small gain.
3. These calls expire on May 20, which means the trader thinks shares will complete their big rally in the next 50 days.
In sum, for our trader’s $5.5 million bet to pay off, DAL needs to move higher — and fast! Not only is this bet big… it’s also pretty bold. Back when I was in Philadelphia, when trades like this occurred on the floor, it wasn’t uncommon for the rest of us to “coattail” the trade and quickly buy some of the same options for ourselves.
The idea was that, if someone else was willing to drop millions on a single position, they’d likely gone to great lengths to vet the trade before committing. If their research was pointing a certain direction, it could be worth the risk to follow suit.
Jared went on to explain that back during his days on the Philadelphia and New York Stock exchanges, the fast-paced nature of floor trading meant that he and his colleagues didn’t have the luxury to vet a trade like this themselves. In those conditions, you would simply throw in with the high roller and hope he’s onto something.
But now that he’s walked away from that game and spends his time recommending trades for regular investors, he’s able to look deeper into trades like this one. And the more he looked into this particular trade, the more he liked it.
Now, before you go and try to enter into the exact same trade, here’s more from Jared on how he plans to do even better:
|As much as I imagine our $5.5 million trader doesn’t want to lose all his money, I’ve seen crazier things happen on Wall Street… which is why it’s crucial to do our own research before jumping into a trade. Upon examination, the airline industry’s health is stable, Delta is fundamentally cheap and has tremendous upside according to nearly every analyst that follows it. |
And while I must applaud his or her ability to sniff out a good trade, our friend didn’t quite get everything right — I found an even better option to play a jump in DAL’s price.
Now, I won’t reveal the specifics of Jared’s recommended trade out of fairness to his Profit Amplifier readers, but I can say that it gives traders a much higher probability of success than this “high-roller” trade. And as I mentioned earlier, it could deliver a 24% profit in a little more than two months.
This just goes to show how understanding simple options strategies like the one Jared uses can help level the playing field with the so-called experts on Wall Street. In fact, Jared believes that strategies like the one he uses are one of the few true “edges” that regular investors can use to get ahead.
If you’ve ever considered giving options a try, I encourage you to check out Jared’s special presentation at this link. If you decide to join his service, Jared’s team will send you a full slate of reports to help get you started.