Last week’s unusual options activity featured volatile leftovers from the Thanksgiving break.
A new COVID variant — Omicron — was set to spread rapidly and investors pushed the broad stock market lower.
But then, the headlines kept coming. And they sent stocks on a rollercoaster ride…
President Biden says America won’t lock down. Stocks rise.
The Federal Reserve talks about tapering even sooner than expected and brings up inflation fears. Stocks tank.
News about the variant dies down, stocks rise again…
But then the first U.S. case is reported and stocks fall again…
This choppy trading environment is tough to navigate, but it also churned up a lot of great unusual options activity.
Short term, we saw a lot of bullish activity. Longer term, it was mixed — as usual.
But it was great to see these heavy hitters not spooked from the volatile week.
Today, we’ll highlight a pair of bearish trades, and one bullish opportunity on a familiar company. Here’s what stood out on my radar…
A Mixed Bag of Unusual Options Bets
First up is our only bullish activity I wanted to highlight today.
Automaker Ford Motor Company (F) attracted a $1.78 million bullish trade going out to June 17, 2022.
This trader tied up nearly $2 million betting on the stock to jump over the next seven months — 12,000 contracts at $1.49 each.
They have plenty of time for it to play out, which is what you want to look for when things get volatile. Buying this extra time will help balance out any short-term volatility.
With the $24 strike price, they’ll need the stock to jump over 30% to get a payday out of this by expiration. Let’s take a look at the chart and see what their odds are…
F shares have been moving sideways for a month now, after a 50% rally.
These pauses, or periods of consolidation, are usually bullish to see. It means the stock is just taking a breather and usually heads higher.
And that’s exactly what this trade is banking on.
Shares will break out of this channel soon, and when they do, expect the stock to head even further in the same direction of the breakout… or breakdown.
Next up, some bearish UOA trades…
Palantir Technologies (PLTR), a software provider for the intelligence communities, is seeing some heavy bearish action.
This trader spent $1.2 million betting on the stock to head lower over the next four months with the March 18, 2022 put option. They grabbed the $19 strike puts and paid $2.19 per share. With 5,500 contracts, we have a $1.2 million bet on our hands.
Here’s the chart…
We can see it broke out to the downside of an ascending triangle pattern in early November. But even after the drop, it’s still well off its late-2020 lows.
That gives us significant downside potential if the stock is going to retest that level. Shares would have to drop another 40% from the current price.
It’s not likely to drop that much by the time this option expires… but this trader is expecting more weakness in the months ahead. One to watch.
Last up is Royal Caribbean (RCL), who’s getting the worst of it this week.
The cruise giant saw a $4.1 million bearish bet, one of the biggest we’ve ever featured.
This is a direct trade on more travel restrictions and slower-than-expected tourism over the next three months. They bought 7,300 contracts of the February 18, 2022 $60 put options for $5.69 per share.
The stock has already been crushed, falling more than 30% in the last month. Fears of the variant spreading clearly had an impact on the stock, and this trader is betting the drop isn’t over.
At this point, they are simply expecting more of the same. But let’s see what the chart shows us…
The chart shows a support level in green just below the stock. But if that fails to hold, this trader could make a killing in quick fashion.
To wrap up, remember my son’s Airbnb (ABNB) trade from last week?
He’s still in it, but this week we saw some heavy volume on put options. One trader grabbed about $4 million of the February 18, 2022 $165 put option for about $12.05 per share.
I’ll be sure to let my son know there’s at least one-deep pocket trader on the other side of his trade.
That’s all for our unusual options activity today. We’ll be back next week with some more trades to put on your radar.
Chad Shoop, CMT
Editor, Quick Hit Profits
Chart of the Day:
Checking in on the Euro
To kick off this week, I thought we’d check in on the Euro/USD currency pair and see how close we are to my downside target…
If you’ve been following along, you know I’ve been closely watching the head and shoulders pattern that began forming in summer 2020. Head and shoulders patterns tend to resolve to the downside, with a breakdown a similar length to the distance from the top of the “head” (blue middle curve) to the “neckline” (bottom rising white line).
In recent months, that pattern has been playing out, with the euro losing 5% of its value against the dollar.
Then right before Thanksgiving, the currency pair bounced right off a key support level that it hasn’t touched since July 2020. That happened to coincide with the emergence of the Omicron COVID variant, some hawkish language from the Fed, and a major shift to risk-off attitude.
So, does this mean the head and shoulders trade is complete? Or does the pair have more downside still to come?
I still have to lean a bit bearish on the euro here. If the Fed is serious about reining in inflation by tapering bond purchases and even raising rates sooner, that’s going to strengthen the dollar at the expense of risk assets. That could mean the euro falls even further.
Still, if you’ve been playing this pattern and you haven’t yet taken profits, now’s hardly a bad time to do so.
I’ll keep an eye on this chart for any new patterns that could signal where the euro might head next.
Managing Editor, True Options Masters