27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
Gap Inc (NYSE:GPS) tanked Friday after the company disappointed the market a weak earnings preannouncement, cut its full-year guidance and announced the surprise departure of its CEO.
A number of large option traders reacted to the news with big moves on Friday. Here’s a look at how those large traders are positioning themselves following the drop.
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The Trades
On Friday morning, Benzinga Pro subscribers received 17 option alerts related to unusually large trades of Gap options. Here are some of the most noteworthy trades:
- At 10:00 a.m., a trader sold 22,851 Gap put options with a $18 strike price expiring on Dec. 20 below the bid price at 44.3 cents. The trade represented a $1.02 million bullish bet.
- From 10:58 a.m. to 11:300 a.m., potentially one trader sold a total of 8,681 Gap put options with a $19 strike price expiring on Dec. 20. The series of nine trades were executed at or near bid prices ranging from $2.48 to $2.661. All together, the trades represented a bullish bet worth more than $2.15 million.
Of the 17 total large Gap option trades Wednesday morning, 14 involved calls purchased at or near the ask or puts sold at or near the bid — trades typically seen as bullish.
The remaining three trades were calls sold at or near the bid or puts purchases at or near the ask — trades typically seen as bearish.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
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Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge.
In this case, given the timing and the sizes of some of the Gap option trades on Friday, traders should understand there’s a strong possibility that at least some of them could have represented institutional hedging.
Gap Bounce Ahead?
The majority of the large option trades in Gap on Friday morning are bullish in nature, which could suggest traders see the big drop as a potential capitulation point for Gap shares.
Yet the large number of put sales Friday could also simply suggest that traders that took large bearish put positions ahead of earnings expected out on Nov. 21 are simply cashing in on their big gains.
Gap shares are now down 32% overall in the past six months, and many put holders have made a killing off the trade up to this point.
Benzinga’s Take
Put dumping at the bid is certainly bullish, but it’s often not as bullish of a signal as call buying at the ask. Friday’s put dump may simply be a sign that traders see risk to the upside more than the downside ahead of earnings. The fact that none of the large options trades were in contracts expiring in 2020 and beyond suggests large traders aren’t necessarily taking a side when it comes to Gap’s longer-term outlook.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
Related Links:
Option Traders Make Large Bearish Bets On Micron
How To Read And Trade An Options Alert
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.