Hey Traders,
Every day, I watch the market for Big Money moves … because a lot of the time, Big Money = Smart Money.
I mean, if traders are willing to plunk down millions of dollars to support their trading ‘opinion’ … there’s usually a good chance they know something we don’t.
Not to mention, spotting these trades can give me the perfect ‘inspiration’ for piggyback trades of my own …
That’s why I always keep an eye on where the Big Money is flowing …
While the S&P 500 (Ticker: SPX) certainly had a rough go at the beginning of the week, there were plenty of Big Money traders ready to pounce on “bargain priced” equities …
The options pits were definitely busy, and two miners in particular caught my eye, as Big Money trades targeted these tickers for (moderately) bullish bets.
Let’s dig into these two Big Money miner trades.
More Yellow Cake
One of my favorite tickers from the past few weeks has been uranium name Cameco Corp (Ticker: CCJ), who, until recently, was having a heck of a rally:
Chart courtesy StockCharts
And that particular trader was probably quite pleased to see CCJ drop along with the S&P 500 this week (assuming they’re still holding their position).
But there’s plenty more Smart Money moves zeroing in on the uranium name, and on Monday there was a spread I found particularly interesting …
This trader bought-to-open 10,000 contracts of the CCJ December 25-strike calls for $1.46, while simultaneously selling 20,000 contracts of the December 32-strike calls for $0.60.
Trade details courtesy Trade-Alert
That means this trader only paid a net cost of $0.26 to own the 25-strike calls – and should all of their contracts expire worthless, they’ll only lose their cost paid of $260,000.
Currently the 25-strike represents nearly a 19% premium on CCJ’s Tuesday close of $21.08 …
However, if CCJ manages to recover and resume trading near the 10-year highs it notched just over a week ago …
This trader could see a hefty payday.
Keep in mind that these trades have plenty of time left to expiration — which could work both for and against this Smart Money move.
Because this ratio spread involved selling twice as many of the 32-strike puts, should CCJ have another monster rally, this trader could find themselves in a pinch. While the purchased 25-strike calls would manage to contain their potential losses on half of their sold put position, the other 10,000 contracts could present a problem if the trader keeps them open, and they start to get out of hand.
Interestingly, while the Big Money trades we looked at last time were specifically banking on CCJ to remain above $21 but below $24/$25 through December, this time around we’re seeing the Smart Money bet specifically that CCJ is moving above the $25 mark.
Could this be a revised play by the same trader, or is are the two Smart Money movers simply at odds with what they expect out of the uranium miner?
Freeport-McRoarin’ Higher?
CCJ wasn’t the only miner who dug itself into a hole on Monday.
Freeport-McMoRan (Ticker: FCX) has been hit especially hard by the latest stock slide, with prices of materials such as iron ore and copper feeling the headwinds from worries surrounding Chinese developer Evergrande Group, and FCX nearly hit a six-month low on Tuesday.
Chart courtesy StockCharts
In spite of FCX’s recent slide (and general downtrend over the last several months), one Smart Money trader seems to think there will be some recovery in the works for the mining shares.
This trader purchased 16,000 December 33-strike calls for $1.97, while selling the same number of the December 40-strike calls for $0.52, bringing their net purchase price down to $1.45 for the long calls.
Essentially, this is a smart money bet that FCX will be able to close its early-week gap back above $33 (or really, the breakeven mark of $34.45) while remaining below $40. The closer to $40 FCX can manage to get before December expiration (without a significant breakout above), the more profit this trader stands to make – with a maximum potential gain of $8,880,000 (($40 high strike – $30 low strike – $1.45 purchase price) * 100 shares per contract * 16,000 contracts).
Of course, should FCX get a little too rowdy, and head above the $40 mark, this trader could feel the sting, with the maximum loss being their initial outlay of $2,320,000.
Personally, I see FCX as ready to bounce higher, and I saw some pretty hot bargains in the FCX pits today as well – although I was looking a bit more near-term than the trader above. The October standard expiration 33-strike calls were trading for around $1, and I could see them doubling pretty easily, especially if FCX manages to close its early-week gap lower.
It can literally pay to piggyback Smart Money. Keep an eye out — I’ll be breaking open Big Money secrets in a special live event next week. Details coming soon …
Your Only Option,
Mark Sebastian
