Insane 300% Gain from One Multi-Leg Options Trade — Transcript

Full transcript

1. 0:07Welcome back to the Unusual Wells
2. 0:09YouTube channel. As always, everything
3. 0:11provided is strictly forformational or
4. 0:14educational purposes. None of the
5. 0:16following should be seen as financial
6. 0:17advice. Back with another flow recap
7. 0:20here today. The ticker is SMH, the VANX
8. 0:23Semiconductor ETF. This flow combines
9. 0:26some good options education as well as
10. 0:29some unusual whales how-to. So, it makes
11. 0:31for a great example. On June 10th, we
12. 0:34saw a complex trade consisting of four
13. 0:36legs being opened. As the tweet states,
14. 0:39it looks like a call debit spread using
15. 0:41the 265 and 295 strikes and a put credit
16. 0:45spread using the 230 and 170 strikes for
17. 0:49the September monthly expiration. At the
18. 0:52time of the trade, SMH was trading at
19. 0:54$260.
20. 0:56On its own, a call debit spread and a
21. 0:59put credit spread would be bullish. But
22. 1:01when put on at the same time by
23. 1:03presumably the same trader, it makes it
24. 1:05far more bullish than the sum of its
25. 1:07parts. A link to these option strategy
26. 1:09pages you see will be in the description
27. 1:11box below. How do we know the trade is
28. 1:14being opened? We can very likely reason
29. 1:16that all four legs are being opened here
30. 1:19given the volume to open interest
31. 1:20relationship on all of the contracts. In
32. 1:24some cases, such as the 295 strike, it
33. 1:26is much more pronounced than others. But
34. 1:28given that all four contracts are seeing
35. 1:31the same volume at the same time, we can
36. 1:34reason that the same trader is
37. 1:36responsible for all of this activity.
38. 1:38The total position size is approximately
39. 1:403,900 contracts. Let's quickly calculate
40. 1:44the overall cost or the potential credit
41. 1:47for putting this trade on. Here are the
42. 1:50average prices of the 265 295 call
43. 1:53spread and the 2301 170 put spread at
44. 1:56the time of the screenshot. The 265 call
45. 1:59at 1636, the 295 call at 563, the 230
46. 2:04put at 646, and the long 170 put at $1.
47. 2:09So you take the long call at 1636, you
48. 2:12subtract 563 and you get 1073 debit for
49. 2:17the call spread.
50. 2:19You take the short put at 646,
51. 2:22subtract 1 and you get 546 credit for
52. 2:26the put spread. You take the cost of the
53. 2:29debit spread at 1073 and subtract the
54. 2:33credit you received from the credit
55. 2:35spread, the credit of 546, and you're
56. 2:38left with 527 final $527. That is, I've
57. 2:44added the max risk and max gain totals
58. 2:46to the screen. Pause the video if you
59. 2:49need to.
60. 2:50So, we see this trade. How can we keep
61. 2:53tabs on it? Conceptually, tracking a
62. 2:55whale can be done through volume and
63. 2:56open interest. We have many videos on
64. 2:58how to do this. I'll have some linked in
65. 3:00the description box below. But how can
66. 3:02you do it on unusual wells? If you're
67. 3:04looking at any trade in the flow, you
68. 3:07can add it to a watch list by clicking
69. 3:08the plus icon. If you don't see this
70. 3:10icon, you can turn it on from the
71. 3:12columns menu. Any contract that has been
72. 3:15added will be accessible from both your
73. 3:17contract lookup page as well as your
74. 3:19options watch list. Links to both pages
75. 3:21will be in the description below. During
76. 3:23market hours, I like to sit on the watch
77. 3:25list sorted by volume. This lets me see
78. 3:28if there's any large volume on any flows
79. 3:30that I'm tracking. I started seeing
80. 3:32volume on all four contracts, which
81. 3:34tipped me off that they might be
82. 3:36closing.
83. 3:38Similarly to how they entered the trade,
84. 3:40they exited in chunks throughout the
85. 3:42day, as seen in this update tweet that I
86. 3:44made here. We're looking at a 30-day
87. 3:46chart for the entire trade. Note the
88. 3:48volumes that took place yesterday.
89. 3:513,900 give or take on all four
90. 3:54contracts. the exact same sizing as the
91. 3:57day they entered.
92. 3:59If we take the average price of all four
93. 4:01contracts, we can calculate how much
94. 4:03they close the total position for in
95. 4:05exactly the same way that we did to
96. 4:07calculate their overall cost of entry.
97. 4:10So, we have a quick learning opportunity
98. 4:12here. For those who've always heard me
99. 4:14harp on about the four different ways to
100. 4:16trade an option, we've gotten to see
101. 4:18this on full display here. So to enter
102. 4:21their trade they bought to open the 265
103. 4:25C. Now they will be selling to close. To
104. 4:29enter the trade on the short leg they
105. 4:32sold to open the 295 C. They will now be
106. 4:36buying to close.
107. 4:39The 230 put was sold to open. These will
108. 4:42be bought to close. The 170 put was
109. 4:46bought to open. These will be, you
110. 4:48guessed it, sold to close. So, now back
111. 4:51to the the math of it all here.
112. 4:55So, if they sell their 265C at 2703
113. 5:00and then they buy to close their 295 C
114. 5:02at 1083
115. 5:05and then they buy to close their 230p at
116. 5:07270 and then sell to close their 170p.
117. 5:11All the numbers are here. The final
118. 5:14value is $1856.
119. 5:17So when they closed their position, they
120. 5:18received $1856 per contract. Remember
121. 5:22the entry price was 527.
122. 5:25That's good for more than a three times
123. 5:27gain. SMH started the trade here at 260
124. 5:31and was trading at 280 when the trade
125. 5:34was closed. That's going to wrap it up
126. 5:36for this video. I hope this flow recap
127. 5:38was helpful. As a reminder, our July 4th
128. 5:40sale is ongoing for another day, ending
129. 5:43July 9th at 11:59 p.m. Pacific. Lock in
130. 5:47a discounted rate and follow the flow.
131. 5:50See you guys next time.