http://www.cnbc.com/id/102545580?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=102545580



In a very well-timed trade, a trader made over $2 million in just 28 minutes, playing what could be one of the biggest tech deals this year. 

According to CNBC contributor Mike Khouw, there are three possible ways the trader was able to react so quickly: The trader could have just caught Mattioli's tweet at exactly the right time, a bot may have alerted the trader of the tweet, or the trader knew that there was something going on beforehand and had a finger on the trigger waiting for the news to come out.

>>>>
Can any option gurus here explain this?

FluteHolder wrote:http://www.cnbc.com/id/102545580?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=102545580



In a very well-timed trade, a trader made over $2 million in just 28 minutes, playing what could be one of the biggest tech deals this year. 

According to CNBC contributor Mike Khouw, there are three possible ways the trader was able to react so quickly: The trader could have just caught Mattioli's tweet at exactly the right time, a bot may have alerted the trader of the tweet, or the trader knew that there was something going on beforehand and had a finger on the trigger waiting for the news to come out.

>>>>
Can any option gurus here explain this?

Trader bought April 36 strike at a premium of 35 cents a  share, with a total volume of  3158 contracts (A contract referring to 100 shares)
The cost = 3158*100*0.35 =  110530 + commissions (3158 + 10 = 3168) = 113698 (approx)

The price went to 44.39. even assuming 44, this would increase the contract price from 35 cents to 8 dollars (44-36).
So the value of traders holdings after half an hour = 3158*100*8 = 2526400

Traders profit assuming the sale was made at 44 = 2526400 - (113698 + commissions(3168)) = 2409534 or 2.4 Mil.

rawemotions wrote:

FluteHolder wrote:http://www.cnbc.com/id/102545580?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=102545580



In a very well-timed trade, a trader made over $2 million in just 28 minutes, playing what could be one of the biggest tech deals this year. 

According to CNBC contributor Mike Khouw, there are three possible ways the trader was able to react so quickly: The trader could have just caught Mattioli's tweet at exactly the right time, a bot may have alerted the trader of the tweet, or the trader knew that there was something going on beforehand and had a finger on the trigger waiting for the news to come out.

>>>>
Can any option gurus here explain this?

Trader bought April 36 strike at a premium of 35 cents a  share, with a total volume of  3158 contracts (A contract referring to 100 shares)
The cost = 3158*100*0.35 =  110530 + commissions (3158 + 10 = 3168) = 113698 (approx)

The price went to 44.39. even assuming 44, this would increase the contract price from 35 cents to 8 dollars (44-36).
So the value of traders holdings after half an hour = 3158*100*8 = 2526400

Traders profit assuming the sale was made at 44 = 2526400 - (113698 + commissions(3168)) = 2409534 or 2.4 Mil.

That is not what FH is asking. He is asking how the guy knew when to buy and when EXACTLY to sell.

he has a special line to sadguru who told him what to do.

this is what I've been asking for: when is sadguru giving stock tips, timing signals etc

this is what I've been asking for: when is sadguru giving stock tips, timing signals etc

RE: Thanks for the explanation. But what if the price had gone the other way, he would have lost it all?  I assume he cannot lose more than what he invested. Is this a normal size of the trade or he took a big risk by having seen the news/info in time?

Flute
How would anyone other than the guy involved know the answers to questions you are asking?

FluteHolder wrote:RE: Thanks for the explanation. But what if the price had gone the other way, he would have lost it all?  I assume he cannot lose more than what he invested. Is this a normal size of the trade or he took a big risk by having seen the news/info in time?

It smells of insider trading or other illegal activity rather than a trader's skills or luck. Nobody puts that kind of bets.
Sometimes, big guys even start spreading the rumor themselves using hired hands after taking up a big position.
There are trading services which monitor open interest in options and block trades to sniff these insider activities and follow them to profit.

b_A wrote:

FluteHolder wrote:RE: Thanks for the explanation. But what if the price had gone the other way, he would have lost it all?  I assume he cannot lose more than what he invested. Is this a normal size of the trade or he took a big risk by having seen the news/info in time?

It smells of insider trading or other illegal activity rather than a trader's skills or luck. Nobody puts that kind of bets.
Sometimes, big guys even start spreading the rumor themselves using hired hands after taking up a big position.
There are trading services which monitor open interest in options and block trades to sniff these insider activities and follow them to profit.

I have no experience/idea about order flow in equities/options. I understand if you have higher level access or level II quotes, you may see the volume/open interest/order flow etc, which may indicate the buy/sell orders ?
Which is not possible in Spot FX markets where there is no Central exchange to see the total volume of orders.

I have heard rumors of big players plant news/rumors to change the sentiment of traders like (Goldman Sachs or other big ones predicting (most of the time wrongly) about long term levels of currency pairs or gold. 

So unless one is really aware of the news it will be unusual for a trader to bet that large of an amount on a single trade?

FluteHolder wrote:

b_A wrote:

FluteHolder wrote:RE: Thanks for the explanation. But what if the price had gone the other way, he would have lost it all?  I assume he cannot lose more than what he invested. Is this a normal size of the trade or he took a big risk by having seen the news/info in time?

It smells of insider trading or other illegal activity rather than a trader's skills or luck. Nobody puts that kind of bets.
Sometimes, big guys even start spreading the rumor themselves using hired hands after taking up a big position.
There are trading services which monitor open interest in options and block trades to sniff these insider activities and follow them to profit.

So unless one is really aware of the news it will be unusual for a trader to bet that large of an amount on a single trade?

Yes. Sometime big institutions use it for hedging but they usually build it over time and longer term expiry dates.

FluteHolder wrote:RE: Thanks for the explanation. But what if the price had gone the other way, he would have lost it all?  I assume he cannot lose more than what he invested. Is this a normal size of the trade or he took a big risk by having seen the news/info in time?

It looks like the trader (BTW does it mention anywhere that he is a male) bought options expiring April, 
not expiring the same day. Those expire on Apr17.

So if the price had gone the other way. yes trader could lose all, and yes only the amount that was invested (only if sold as options i.e. NOT excersized).

But options are not for the faint-hearted. I wrote a post a few years back about a situation involving options excersize, where the trader can lose much more than what was invested in the options. If I recollect right, I gave the example of google options.

Typically options lose money as time progresses, would go down but would never go to zero, unless the price movement is massive. So under normal circumstances, options lose value every single day, even if the underlying stock price is about the same.  Options with far out expiry dates lose less money per day compared to those that have near term expiry dates. However they also cost more in terms of premium. 

When options are bought, we also have to look at inherent premium. So based on the time value and Beta (Volatility history) of the a stock, the options exchange will assign a base premium. However depending on the demand the actual price could be more than the base premium. This typically happens before earnings reports. We need to be careful when buying those options because once the earnings reports come out, even if the underlying price had not change, options will lose the extra value it had becaus of demand-supply inequities and lose the extra demand premium money overnight.

The trade is a bit unusual for a small trader. But that depends on the trader's typical order quantity. 10-20K is very normal.  100K definitely on the higher side.If the trader is known to always gamble 100K at a time on out of the money options, then it would be normal for the trader. It all depends on what is the discretionary amount a trader is willing to lose and whether the brokerage will allow the trader to place a large bet. Most brokerages will put orders on pending status if sudden orders that does not fall into the typical pattern emerges.

Regarding your question on how the trader knew. I have no idea. If the trader had bought options expiring the same day, i guess it would warrant a SEC investigation. If the order was placed seconds before, again it would warrant a SEC investigation. WSJ provides money flow data. But in this case it is too fast. So it is certainly an abnormal trade.
At the least because it got reported, I am assuming the SEC will investigate.

On your question on market intelligence, I have been using stockconsultant.com which provides summary bullish/bearish data on stocks. It consolidates all money flow and other indicators to provide a summary recommendation with percentage values. I found their analysis to be generally close to true market sentiment. They also provide support and resistance levels so that we can plot our entry and exit points.  Off course these are all background info, It is always possible for any given state to not follow the prescribed pattern.  I do not know of any other sites. If you or others know any such sites I am interested in knowing about them. 

It is my understanding that this year is going to be pretty volatile for the stock market. So we need all the analytics help we can get. Even then it is tough to make money in the market.

RE: Thanks again for the detailed explanation. So soon SEC might knock the trader's door...

Aside, it would be very unlikely to make that kind of returns (Betting 1X$ to get 25X$) 

What would be the normal risk to reward ratio in day trading or medium/long term trading /investing in stocks/options?