Hey Traders,
You may already know how much I love following Big Money …
But this absolutely does not mean I follow Big Money blindly.
Quite the opposite, in fact.
See, so-called Smart Money sometimes makes trades I find perplexing … or that frankly seem downright dumb!
For example, selling massive blocks of puts on a tech stock that has been struggling against headwinds for months …
This Smart Money move just doesn’t make sense!
After tapping November highs north of $24, SoFi Technologies (Ticker: SOFI) spent months spiraling lower …
It looks like the shares may have finally – hopefully – found a floor at $4.82 earlier this month …
Over the past few trading weeks, SOFI has managed to claw back at least some real estate …
Even then, after dropping 2.9% on Monday, SOFI closed at just $7.27 …
But that didn’t seem to deter Big Money from making a wildly bullish bet …
One that doesn’t exactly seem risk/reward balanced to me!
During Monday’s trading session, this Big Money trader sold 53,295 contracts of the SOFI June 5-strike puts for $0.07.
This perplexing trade accounted for nearly all of the open interest on that particular contract …
Let’s put this into perspective, shall we?
With SOFI dropping 7.6% during Tuesday’s trading session to close at $6.72, that strike price is just 26% below where SOFI currently sits.
SOFI has been creeping steadily lower for months … and remember, the shares recently touched a low of $4.82.
That low didn’t happen all that long ago …
And there’s no guarantee the shares won’t be heading back to that level – or lower – in short order, especially with the tech sector facing stiff headwinds!
If SOFI can manage to hold on above the $5 mark through June expiration?
This trader will pocket a whole $373,065.
Okay, not bad, right? I mean, I certainly wouldn’t turn down an extra $373,065 in my bank account …
However, the puts sold account for 5,329,500 shares of SOFI stock.
So if SOFI drops to $4 – which, let’s face it, does not seem out of the question – this trader is out $5,329,500!
That hardly seems like the potential reward is worth the risk to me …
All SOFI needs to do is head back near its recent lows and this trader could find themselves in some very hot water.
And with tech stocks these days, that’s definitely possible …
Just ask the trader who sold 37,324 contracts of Snap Inc. (Ticker: SNAP) June 3 17.5-strike puts for $0.13 during Monday’s trading session.
On Monday, ahead of its latest earnings report, SNAP dropped 3.4% to close at $22.47 …
So it might not seem entirely crazy to think it was safe to sell the 17.5-strike puts with only two weeks to expiration.
But then …
SNAP fell 43% in a single trading session, closing at $12.79.
Ouch, right?
Instead of a potential profit of $485,212, this trader may be on the hook for millions (and I mean MULTI-millions) of dollars.
This is why, even if you’re following the biggest Big Money trade you can find …
Always think for yourself, and always make sure you are acting in the best interest of your OWN risk management needs.
That’s why I always go over every Big Money trade I consider copying and do my own due diligence.
Not to mention, sometimes Big Money trades aren’t always what they seem to be on the surface.
For example, if these put sales were attached to blocks of equivalent shares, we might be discussing a whole different situation altogether.
In a market like this, risk management and making sure you are confident in your trades is absolutely paramount.
That’s why Licia Leslie and I are teaming up tomorrow night at 7 p.m. ET to show you how we’re doing “double duty” on our trades …
And we may even give you a sneak peek of the trade we’re making next …
But you’ll have to be there to find out!