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.
Last year was another difficult year for the retail sector, with Amazon.com, Inc. (NASDAQ:AMZN) continuing to put pressure on traditional brick-and-mortar department stores. Walmart Inc (NYSE:WMT) is flourishing in the Amazon era, but some large option traders are betting 2020 will once again be Amazon’s year.
The Trades
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On Tuesday, Benzinga Pro subscribers received five option alerts related to unusually large trades of Amazon and Walmart options:
- At 10:50 a.m., a trader sold 930 Walmart call options with a $115 strike price expiring on Feb. 21 near the bid price at $2.971. The trade represented a $276,303 bearish bet.
- At 10:57 a.m., a trader sold 809 Walmart call options with a $115 strike price expiring on Feb. 21 near the bid price at $3.021. The trade represented a $244,399 bearish bet.
- At 10:57 a.m., a trader bought 762 Amazon call options with a $2,100 strike price expiring on March 20 at the ask price of $13.50. The trade represented a $1.02 million bullish bet.
- At 10:57 a.m., a trader sold 671 Walmart call options with a $115 strike price expiring on Feb. 21 near the bid price at $2.983. The trade represented an $200,159 bearish bet.
In addition, there was a $3.23 million trade in Amazon Jan. 31 $1,862.50 puts at the midpoint of the bid-ask spread, a price point typically considered to be neutral.
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.
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 relatively large size of the largest Amazon trades and the fact make it possible that at least some of the trades were institutions hedging against large positions in Amazon stock.
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Amazon Back On Top?
Amazon investors were in unfamiliar territory in 2019, with the stock actually lagging the overall market due to concerns over slowing revenue growth and antitrust scrutiny. In fact, Walmart shares have also outperformed Amazon in the past year, gaining 17.5% overall compared to Amazon’s 10.4% gain.
However, at least one large trader is betting that trend will reverse, at least through fourth-quarter earnings season. The $1.02 million Amazon trade on Tuesday came after UBS reiterated its Buy rating for Amazon on Friday and raised its price target for the stock to $2,305.
At the same time, Walmart shares have struggled in early 2020 after competitor Target Corporation (NYSE:TGT) reported disappointing holiday sales numbers.
Benzinga’s Take
Given all the large Walmart and Amazon option contracts traded on Tuesday expire within two months time, its difficult to draw any conclusions about what the traders may think about the two companies in the long-term. For now, at least, it seems deep-pocketed investors are betting Amazon comes out on top in fourth-quarter earnings season.
Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.
Related Links:
Microsoft Sees Bullish Option Activity As Stock Hits New All-Time High
Analyst: Amazon, Wayfair Big Winners From Impressive Online Holiday Sales Growth
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.