Hey Traders,
It may have been a (relatively) calm day on the markets yesterday …
But one payment processing name didn’t share the sentiment!
This stock saw some unusually huge volume crossing the tape …
And it looks like a Smart Money double whammy!
(Though, it’s not all bad news …)
Was this all the same trader … or is this a case of Big Money following Big Money?
Doubling Down
Pagseguro Digital (Ticker: PAGS) is a fintech and digital payment company that has gotten battered over the last several weeks …
Between releasing disappointing preliminary Q3 numbers, new regulatory fears, and concerns about inflation, PAGS shares shed nearly 50% between their late August high of $61.65 and their Monday low of $31.10.
While the shares had a strong trading day on Tuesday after Goldman Sachs noted the recent sell-off may be “overdone,” but even a +14% day didn’t do much to soothe recent burns …
And in PAGS pits, Smart Money was quick to make some moves …
Minutes after noon, one trader sold a block of 4,000 October 37.5-strike calls for $0.75 — likely closing out a position that unfortunately looks like it won’t be in-the-money by the time Friday rolls around.
While they were able to recoup $300,000 in premium on that closeout, they also opened a pair of bull call spreads that seemed to say they weren’t done chasing the 37.5-strike just yet …
First, they opened up a November 37.5-45 call spread, paying $2.65 for 2,000 contracts of the November 37.5-strike calls, and selling the same number of contracts of the 45-strike calls for $0.70.
While the sale of the 45’s helped reduce the initial outlay required, this is still a hefty $390,000 outlay — wiping out the premium received from their October sale, plus a little extra.
Of course, they weren’t done yet …
They also opened up a January 2022 37.5-47.5 call spread, this time more than doubling down, and selling 5,000 contracts of the 47.5-strike calls for $1.20, and paying a handsome $4.00 for the same amount of January 2022 37.5-strike calls!
That’s a $1.4 million outlay, even with the 47.5-strike sold …
Smart Money seems to think 37.5 is the magic number …
Second Chances?
This wasn’t the only interesting action happening in PAGS pits.
Just four minutes later, another trader also made an adjustment to their PAGS position.
They’re remaining bullish … but tempering their expectations.
In this trade, the Smart Money trader sold 25,000 contracts of the January 2023 62.5-strike calls for $2.10.
This brought in a whopping $5,250,000 …
Which the trader promptly used to help finance the purchase of even more January 2023 calls — specifically, paying $4.48 for 26,104 contracts of the 50-strike calls.
Without the $5.25 million in premium received, an outright purchase of these lower-strike calls would have cost the trader $6,212,752. Instead, their out-of-pocket cost was a mere $962,752.
They did lower their breakeven price significantly, though …
So it seems like Smart Money is staying stubbornly bullish on the in-pain payment processing stock.
Of course, the interesting question is …
Was this one Smart Money trader doubling down, or was this a case of “Big Money begets Big Money”?
Often, when a Big Money trader sees another Big Money trader targeting a stock, they’ll take their chances and jump in as well … (see, even Smart Money follows Smart Money!)
Hopefully positive Q3 results and the absence of additional regulatory hurdles will help the shares reclaim their former glory …
In which case, these two traders will likely rake in a healthy profit.
Your Only Option,
Mark Sebastian