Someone is Betting Big That This Stock Will Fall

It started two hours after the market opened and it stopped around lunch time.  In the span of an hour someone was going coo coo for Cocoa puts.  Spoiler alert... they weren't buying puts on Cocoa, but they were going coo coo,  as in hitting the ask with seemingly reckless abandon.  Patience was not a virtue for this put buyer.  With the spread at bid $.15 ask $.60 the buyer was picking up all he/she could handle at $.60.  These options expire in March and up to today had zero open interest.  No one wanted to buy these puts, and no one wanted to sell them.

All together someone bought more than $240,000 of far out of the money options, in a bet on significant downside within the next month.  This trade brings back memories of the $LNCO trade in January 2013.  A giant unusual option trade that made little sense at the time ended up making the trader millions of dollars.

Is that what we will see with this unusual trade?

I am looking around and usually when you get a trade like this the unusual option hounds have sniffed this one out.  Much like $LNCO in 2013, I don't see much talk about this one, which is a good thing.

Usually when scanning for unusual volume there is a method behind the madness.  I try to weed out the spreads, the buy writes, and any other unusual volume that can be explained.  When I see an outright bet on a far out of the money trade, where there was previously no open interest, and there a large chunk of money at stake..... my interest is piqued.

I am intrigued by this trade today.  $240k for a far out of the money strike, its a big gamble, and something I want to ride the coattails of.

Before I finish up, this is what I will try to do in the coming days.

I will look to enter the March $130 puts at $1.00, and hopefully I can manage to have the patience today's put buyer lacked.  This may change and I may enter something else, another date or a different strike.

The REIT space was a bomb during the financial crisis.  The favorite of the bunch was $SPG, and I traded options on the name almost religiously in 2008 and 2009.  The REIT's have recovered remarkably, much like every other stock out there,  but if the market starts to crack the REIT's will come tumbling down.  Perhaps this is the traders rationale on $BXP puts.

Upon doing some additional research today's $SPG trading action was also a little suspicious.  3,500 puts to less than 61 calls.

Are the REITs setting up for a tumble and no one told us about it?

There is an almost $500,000 bet on the April $180 $SPG puts today.

Here is the $SPG chain from today for APR

Here is the unusual action for $BXP.  Notice the spreads when some of the trades were made.  $.10 bid $.55 ask and the buyer just slaps the ask, with total disregard for price.  Seeing this action correlate with $SPG today, this isn't a rouge trader, these are, in my opinion outright bets for downside.

I don't think these trades are coincidence.  Someone was in a hurry to buy up PUTs for a sharp move to the downside in these names.  Like the $LNCO unsual trade in 2013 which made the trader millions of dollars, I think we could something similar this time around.  The good thing is we don't have to wait  six months for these trades to come to fruition.  The $BXP trade was for March and $SPG for April.

The $BXP $125 put trade needs a good $15 to get in the money, although the timing of the move will dictate the price of the option.

I can tell you one thing, I am not putting $400k, $40k, $4k, into this trade.  I may open up a position for $500 and perhaps add some later this month.

Unusual options volume can end up being just that... unusual and nothing more.  Perhaps a rouge trader decided to buy almost a million $$$ total in far out of the money options just for kicks.  Maybe a $BXP and $SPG long is sitting on massive profits but can't sell and to protect them went Coo coo on the puts not caring what price he was getting them at..... see that's what also strikes me.  Why the rush?  Why all the buying at the ask?

I have that same feeling in my gut as I did back in January of 2013 with $LNCO.  Let's see if I'm right again.

If you have thoughts, comments, ideas, anything please respond in the comments section.  I'd love to hear them!  Thanks!

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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7 thoughts on “Someone is Betting Big That This Stock Will Fall”

  1. That’s very interesting and I’d like to analyze the volume that came in on those as well. do you have something that alerts you when I’m usual volume comes in on options like that? if so I’m assuming that this doesn’t happen very often at all correct?

    1. I usually just do a scan in the middle of the day and after the bell, I like to look it over first before making a decision and intra-day its tough to tell for sure what is going on. There is unusual action quite often, but a lot of it can be explained. In this case it looks like an outright bet. The think or swim platform works great for finding trade ideas on this concept. There is w webinar I did a few years ago, perhaps its time to do another

  2. I’ll throw a couple at them….but I haven’t followed these at all…much less for any amount of time. As you alluded to, this could simply be a hedge to a long share position. Did you see any opposing call positions of equal’ish volume in the last 3 months to which this could be a counterbalance? I love trailing smart money trades….but I get nervous when I didn’t find it, nor did I get to follow the money flows up to the target trade at subject.

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