Today’s FREE UOA is in the SOXL! As a fair warning, there was also a bit of bearish put buying today, but for reasons I’ve continually discussed, I don’t really think that’s where we’re going in October, and when I do these, I do my best to select the best pick I see of the day. Today, that was this bullish buy in SOXL.
SOXL UOA BREAKDOWN
TICKER: SOXL (Direxion Daily Semiconductor Bull 3X Shares)
EXPIRATION: October 27, 2022 (14 DTE)
SHARE PRICE WHEN BOUGHT: $19.68 (Price as of writing: $19.06)
CONTRACT COST: $3.10-$3.19 (Current price: $2.60)
Admittedly, this happened at 11:20am EST, so you’ll be able to get this for cheaper now. But today’s red does not discourage me from my bullish view on October. Particularly after our 4-day strong rally that focused around the tech sector, a pullback like today is par for the course. But if you’re bullish like me, these are buying opportunities. If you’re going for this, you might want to wait for the end of the day to make sure all of today’s bearishness is squeezed out, but if you do come in where we’re at now, I don’t think that’ll be terrible either.
For the uninitiated, unusual options activity is our way of following alongside massive trades made by probable institutional traders. Sometimes, these traders have information or data that individual traders aren’t exposed to, and through UOA, we can get a glimpse inside their mind (and their wallet).
In this case, this trader is picking up in-the-money call options expiring in two weeks in a high-leverage ticker. The SOXL is triple-leveraged, which means this ticker moves fast. Additionally, the basket of stocks in this ETF (the semiconductors) are already a high beta area. That means if we get the directional move that we often see in October, we could be in for a ride here. On top of that, the fact that this trader chose in-the-money options with some time on them means we can afford to sweat a few red days like today. Still, this trader spent more than $1.7 million on this trade, so this is no way a small shot.
As always, don’t risk more than you can afford to lose. At Market Rebellion, we’ve always preached the 1% rule – try not to risk more than 1% of your account on a single trade. If this is more than 1% of your account, but you really want in, that’s a good sign that you should stay at a single contract – or potentially buy this as a vertical spread to reduce your risk even further. We also preach taking profit religiously – Jon Najarian has often said that if an option doubles in price, he’ll take half off the table right there. That could be by rolling the option (selling the option and simultaneously buying a cheaper one in the same direction, pocketing the difference), or by spreading the option (selling a further from the money option against your option). Likewise, Jon Najarian preaches selling the option entirely if it loses 50% of its value – in other words, “knowing when to fold ‘em.”
No matter what you do, just try to plan it out ahead of time to help avoid emotions getting in the way.
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