Unusual Whales Trading Strategy

Filters used: https://unusualwhales.com/watchlist/8a71e227-7cee-493a-a729-639a80c1ab7b

Step 1: Create a scan filter for option contracts that you want.

The scan filter that I created looks for options that meet the following criteria:

      1. Have a premium under $1 or worth less than $100.
      2. Expires within the week.
      3. Traders are buying the contracts at the ask price.
      4. Avoiding companies that are reporting earnings soon.
      5. Not a hedge trade.

Reasoning:

I applied these filters looking to find option contracts in high demand because someone believes a big move will come soon

Step 2: Review the alert’s technical details.

For this walkthrough, we will be going over the $AMD 2021-08-06 call $115.

 

The trade was alerted on August 2nd at 3:55 pm, minutes before the market closed.

The bid and ask were around 0.67 and 0.69,  well within our $100 budget.

When the alert was given, $AMD was trading around $109.12.

The delta of the contract was 0.1951m which is an excellent delta for this contract.

We also note the 35,450 volume – meaning there is a relatively large interest/liquidity in this contract.

 

Step 3: Do your technical analysis on the underlying stock to qualify or unqualify the alert.

On the 2hour time frame, we can note that the 14-day simple moving average ( dashed blue line) is well above the 30-day simple moving average ( dashed yellow line).

We can also take note that AMD has recently reported earnings. The stock sold off into the 30-day simple moving average ($89.5) and then bounced up towards $95.24, then $99.74, then $102.52, $105.3, $107.02, $109.81.

So far, the stock seems to have impressive positive momentum and continues to push into new highs.

The potential downside: the stock is over-extended since it went from $89.5 to $109.81 without stopping. Could potentially see a near-term reversal. It could possibly come down towards $107.02

 

On the 1 day timeframe, we pretty much the same analysis that we saw on the 2hour time frame.

Our intraday and daily time frames indicate that the stock has very positive momentum and is likely to push higher into new highs.

This leading to my conclusion: the alert to buy the $AMD $115 calls offers a good risk-reward.

 

Step 4: Placing your trade.

Now that we know what contract we’re going to trade, we have to execute the trade.

Given that the trade was alerted at 3:55 pm, just 5 minutes before market close, I had to wait until the next day actually to place the trade.

Once the market opened, $AMD opened around $108 and then pushed higher into $109.81, but it could not hold above it.

Price continued to fluctuate between these two levels until around 11 am.

Around 11 am, $AMC pushed above the $109.81 resistance that we took note of previously.

This was my ideal entry point.

Around this time, the $115 contracts were trading at $0.54 or $54, perfectly within our budget and at a lower price than initially alerted.

$AMD then pushed higher into $112.59 – a good price target to reduce some risk. A good idea to sell around 50% of your position.

After this, we continued to push higher into $114.85, pretty close to the $115 strike. A great idea to sell the remaining position here.

The option contracts went from $0.54 to a high of $2.6.

An insane 381% return on investment.

 

Step 5: Stop trading.

It is best to walk away while you’re up than to give back your profits.

Now, just before the market closed today, another $AMD alert was given.

This time for the $120 calls.

How will we trade this?

For more information on how to use the 14-day and 30-day simple moving average:

https://www.youtube.com/watch?v=ikOSIJ4lOXk