Trade of the Year?

03/30/2015 8:00 am EST


Andrew Giovinazzi

Chief Options Strategist,

While Andrew Giovinazzi, of, feels he’s already found the ‘Trade of the Year,’ despite the fact that we’re only nearly finished with three out of 12 months, he also stresses the reality that few upside call buys turn out like this and thinks the trade is still Index Iron Condors.

We are only three months in, but I think I found the trade of the year.  No doubt the option charlatans out there will talk about this monster winner as the way to make things happen.  Buy out-of-the-money options in potential takeover stocks and walk away with untold riches.  It is easy, right?

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I write up Unusual Activity for the Options Insider Radio Network.  A lot of volume goes by every day and some volume looks a lot more interesting than others.  On March 10, I wrote up this KRFT Jun 67.5 call purchase for .70.  It was such an OTM trade that—at first glance I thought it was a buy writer. The buyer moved the IV up enough that the trade was most likely a buy.

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The reality is few upside call buys turn out like this.  Also note the call buyer has not sold the options yet as the OI is still around 18000.  If I was Exchange Surveillance I would be all over this one.  To paraphrase Napoleon Bonaparte, “I don’t want my generals to be smart; I want them to be lucky.”  This customer was pretty darn lucky.

The Lesson

Unusual activity is worth looking at because big paper moves the needle.  Trades that move volatility are the ones that are most interesting.  Not all big paper is right though and you never know what is against it.

The Trade

I still think the trade is Index Iron Condors.  The tepid move in vol. futures makes me think the pop we got was short lived.  2015 has given monthly pops in VIX so just wait for them.  This has nothing to do with Unusual Activity but that is the day we had.

By Andrew Giovinazzi, Chief Options Strategist,

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