Issue 65: This is more than a little weird - Masters in Trading Digest

This is more than a little weird

Welcome to Issue 065 of Masters in Trading Digest.

Wall Street Wiretapper is our Unusual Options Activity scanner that searches for weird trading behavior in the options market. This weird behavior is called “unusual options activity” and often is a predictor of big stock movement. The core scan of the Wiretapper is called the “Super Unusual List”

On May 5th, Wall Street Wiretapper found 15 different names that hit the core “super unusual scan.

On May 6th, 6 different stocks hit this scan, and on the 9th 18 tickers caught the scan.

On May 10th, volatility spiked, and 22 names were found to be “super unusual” followed by 15 names the next day; 13 the next.

On Friday, May 13th, Wiretapper picked up zero names that fit our rigorous scan.

My first thought was to text Pablo and ask if the tool was updating.

ZERO names on a volatile trading day were weird. But the data’s been processed, and still… no names catch.

I wonder what this all means…

Jonathan

The Trading Week of May 16, 2022

Throughout my career, Sunday mornings have been used to prepare for the upcoming trading week.  This is when I get my core research done.

Once the work is through, I package up my thoughts in an email and then shoot it off to Wall Street Wiretapper members. 

Monday, we gather live at 11 AM EST to review the trades for the week.

The most difficult part is narrowing down our ideas into the 2 or 3 that we share with the members each week.

This becomes like a game for me… out of all the ideas, which names have the highest probability of a successful outcome.

I certainly don’t want to share 10 different ideas, that’s overwhelming.  

Instead, we do the leg work, sift through our various ideas, and share what we believe to be the best risk vs reward opportunities for the week.

This week we shared 3 new trades with the membership, but this came from a subset of 12 names that were also taken from a subset of 3600 different names.

Masters in Trading Digest - Issue 65

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This is Weird?

We created Wall Street Wiretapper to help everyday traders follow the trading behavior of “smart money.”

An example of “smart money” is a 10 billion dollar Hedge Fund or a significant university endowment, a prestigious family office, pension funds, corporate raiders –  those with accounts large enough to move markets.

The “smart money” is like what Walmart must be to a small sandwich franchise looking to open new locations. I would assume if that franchise shopper looked for locations close to Walmarts that would be a logical starting point.

Just like we can assume this trade below in Pulte Group ($PHM) was done by someone (or some group of people) with more ‘edge’ than we have.

  • 27,103 calls traded on the $45 strike for $2.55
  • 75,248 puts traded on the $40 strike for 2.35

This trade was made at 10:14 AM CST

That happened to be the high of the day in $PHM.

Was someone putting on a bearish position?

Or, was the large options trade a neutral directional bet and instead, a bet on increased volatility going forward.

Those are the questions options traders need to be answered.

To answer these questions traders follow the smart money.

Big Earnings Week - Who’s Releasing Earnings This Week?

FINAL THOUGHTS

WHAT TO EXPECT IN THE NEXT MIT DIGEST

Will the markets hold the bounce from this past Friday?

That’s the talking point of the week.

If markets hold, we would expect volatility to drop fast.

My guess is the reason Wall Street Wiretapper did not pick up any names on May 13th, 2022 – it’s because the market is poised to trade higher.

Keep your feedback coming into support@mastersintrading.com. We’re excited to share your feedback along with fantastic suggestions for upcoming issues.

Until then, trade smart and always manage your tail-risk.

Thanks for reading,
Jonathan Rose

P.S. There’s Not a Trading Signal We Have More Confidence In.  There’s a PDF Included in the VIX Demo so You Can Follow Along with the Back Tested Trade Results.

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