It’s no surprise that some Wall Street shops have access to the best infrastructure, research, tools, and high-speed supercomputers on the planet.
And they love using options to express their views on stocks and ETFs…
…And I love tracking what they do in the form of unusual options activity.
You see, to keep markets fair and transparent, every option trade (big or small) must be reported and made publicly available.
Well, I use a special options scanner that filters and looks for big block option trades, as well as, relatively large options orders.
For example, on Friday, a trader came in and bought over 1,000 calls in a small company called Sophiris Bio. (SPHS).
What’s the big deal?
Well, SPHS usually trades about 77 contracts. In other words, there was more than 13.5 times the usual options volume in the name.
Of course, that’s not the only thing I’m paying attention to… as you’ll see.
In this weekend’s UOA report, we look at some bullish options activity in a niche healthcare company, as well as, we breakdown a real money trade I’m currently in.
One of the most interesting UOA trades I saw came on Tuesday, and it was in Elanco Animal Health (ELAN).
ELAN is an animal health care company that manufactures, develops and products for animal and companion foods. It aims to provide innovative animal health solutions that can contribute to healthier animals, and ultimately a healthier environment.
Elanco IPO’ed last year in September, and currently still growing as a company and researching and developing more products.
A trader came in and bought 740 July 34 calls for an average price of $0.80 per contract. The stock was trading at $34.02 at the time, and the bid/ask spread was $0.40 by $0.80.
Here’s what stands out
- If you add up the total puts and calls that ELAN trades on average it’s about 702. This order alone was more significant than that.
- Super-aggressive order. Instead of trying to work the order to try to get a better fill, they paid the ask aggressively.
- $59K in options premium is not a lot, but these options expire in less than a week, so its an expensive lotto ticket
And here’s what else
Elanco announced a new global R&D collaboration with AgiBiome Inc. to develop nutritional products for swine. Not only that, ELAN recently announced it would acquire Aratana Therapeutics (PETX), which should lead to positive synergies.
Now, with these moves, it shows that ELAN is committed to bringing solutions to various producers and focused on growing as a company.
Moreover, on Tuesday, ELAN was actually halted for volatility after it spiked on news that Bayer approached the company and wants to potentially merge its animal health unit.
That said, there are a few potential catalysts that could send higher.
From a technical standpoint, ELAN has a bullish setup.
It’s forming the inverse head and shoulders pattern. With this pattern, you’ll notice a drop in the stock… followed by a pop to a resistance level (the neckline – blue horizontal line here).
Thereafter, it pulls back and falls lower than the shoulder… and rises again to the neckline, forming the head. Finally, it forms the right shoulder.
Generally, when we see this price action, and the stock reaches the neckline again… it tends to breakout. If it does, the next level to watch would be its 52-week high (above $37.61 is key).
If it breaks above that… well, it could release the floodgates of momentum buyers and push the stock even higher.
Real Money Trade Update
One of the best ways to improve your odds with unusual options activity is to stack your catalysts.
For example, not only were the Dropbox (DBX) calls I bought off unusual options. The stock had a bullish chart and earnings around the corner.
Check out the daily chart in DBX.
The stock has been a clear uptrend from its December lows, and it’s actually broke above a previous resistance level and filled a small gap down.
Now, it’s approaching another resistance level. The last two times it’s failed to break above. However, typically when we see a stock approach the resistance level for the third time… it tends to break out, and that’s what we’re seeing with DBX.
When you look at the shorter-term daily chart, you’ll notice another bullish pattern.
The stock formed a bull flag pattern and actually broke out, which is very bullish price action.
Additionally, late June, there were M&A rumors surrounding DBX. Now, with earnings coming up, it could start to run higher in anticipation of a strong-than-expected report.
That’s it for the UOA report. I’ll be posting lessons this week, and of course the UOA report on the weekend, and bookmark this page so you can learn from them.
Now, once you develop a process, it becomes easy to find options trades with high profit potential. if you want to find out and learn how to trades options using my simple 6-step approach, then click here to get started.