Trade Recap: COP calls based on Options Flow

I’ve written a lot about following the Smart Money by watching the volume on price action and the options flow. The options flow can often let you see what the smart money traders are positioning for.

Here’s an example from a trade I recently made based on what I saw in the options flow:

On Nov. 22 WTI crude was trading in the low 70’s, having taken a beating after spiking to the mid 90’s just a few weeks before. Despite the ongoing war in the Middle East, oil traders seem to feel comfortable that the conflict would not spread beyond Gaza and chose to focus on weak economic data coming out of China as well as slowing demand internationally.

Trade Entry

Just minutes after market open, someone bought around $200k worth of call options in COP (Conoco Philips), one of the large integrated energy companies.

The screenshot below, taken from blackboxstocks, shows the short dated call sweeps into the 113, 114, 115 and 118 strikes.

[I was made aware of this options flow by one of the moderators of the blackboxstocks live Discord trading room. @MelStone31]

I decided to follow this options flow and buy some 114 strike calls for $1.74 at 10am, when the stock was trading at 113. The COP longer term chart showed some major support at around 111. So it appeared that some smart money trader was betting on a bounce.

Was this a sure thing? Absolutely NOT. The market does whatever it pleases — anything could happen, especially in stocks that tend to be connected to movements in commodities, like crude. But trading is a game of probabilities, and since the smart money has access to information and research way beyond what I could ever dream of having, I decided to take shot and manage my risk with a stop below support and appropriate position sizing. I also bought some common shares are 113.49, so as not to be confined by the time element inherent options, in the event that I would decide to hold for the longer term.

Trade Exit

COP moved up to around 115 by end of day and then spiked up around a point at open on Nov. 24. I sold my calls at around 10am at an average price of $3.45 for a profit of just under 100%. I got stopped out of my stock position a couple of hours later at 115.85, for a 2% gain. Not too bad for a 2 day trade.

Of course, the smart money could have ended up being wrong and this trade could have turned out to be a loser. But following the smart money based on their options activity put the odds in my favor and gave me an edge that ended up working in my favor.

That slight edge is really all that you can ask for in trading. And you can tryin to get that edge too by following the smart money through their options activity.

 

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The tool I personally use to track options flow is blackboxstocks. If you want to follow the smart money, this is a great tool for doing that, which will easily pay for itself if used properly. They also have a very useful chat room that goes along with the scanner. They're running a huge holiday sale now for up to 50% their regular monthly price. Click here to get the deal.