Tag: Unusual Whales

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.

I also have a budget of under $100 per contract.

 

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.

 

 

Second trade : AMD $112puts

On Wednesday, August 4th, at 3:49 pm, the filter alerted AMD $112puts

 

We dive into Step 2: Review the alert’s technical details.

The bid and ask were around 0.69 and 0.72,  well within our $100 budget.

A delta of -0.1722, an excellent delta for this trade.

Delta represents how much your option contract will increase/decrease per $1 move in the stock price.

In this situation, if AMD goes down $1, your option contract will increase by .17 or $17.

If we bought the contract at $70 and the price increases by $17, we just earned a 24% return on investment.

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

We opened up our 1hour time frame and noticed that an Asymmetric Triangle was being formed.

This setup is good for bullish and bearish trades.

Typically if we want to buy puts when the price is on the upper resistance trend line and calls when we are on the lower support trend line.

We would also buy puts if we fall below the lower support trendline and calls if we get above the upper resistance trendline.

I went on the 2hour time frame and took note of the levels that mattered to me.

Below $117.87 will be below the bottom support line, confirming weakness in the stock. Meaning more downside action to come. The target price would be $114.31 or $112.59

Above $120.3 will be above the upper resistance line, confirming strength in the stock.

 

Step 4: Placing your trade.

Now that we know what contract we’re going to trade and what price levels we are looking for, we now have to execute the trade.

Given that the trade was alerted at 3:51 pm, just 9 minutes before market close, I had to wait until the next day actually to place the trade.

At 9:32 on August 5th, AMD opened around $116.16, well below our $117.87 level. The stock was showing a great deal of weakness.

The $112puts were trading around $1.02 – this was out of my $100 budget.

I decided to wait and see if these contracts would come back down in value before getting into the trade.

Around 10:05 am AMD was trading around $115.82 and the $112 puts were now trading around .74.

I saw the stock was consolidating between $115.75 and 116.14.

I went ahead and bought the $112puts here with a stop loss at $116.2.

With having cleared defined target price and stop-loss, we were able to take this trade from .74 to 2.17, a 192% return on investment.

Step 5: Stop trading.

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

 

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

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

 

For more information on how Option contracts change in value :

http://trading.tigerwolfcapital.com/resources

 

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