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Around here, we like to focus on Big Money Flow.
Because it's the driver of all things. Volume is the key to the market... especially this market.
And that's why I take time every day to go through the Big Money Flows. Where was the biggest volume? Where was money moving? Where was the volume yesterday? Where was the volume today?
These are all great questions to ask yourself when you're following the flow... but, on their own, they still don't give you enough information to set up Big Money Flow trades.
Now, I've talked in depth about how to harness Big Money Flow using my SURE system, and why it's one of the best money-making strategies in my repertoire. (And if you don't know what I'm talking about or need a refresher, I recommend clicking that link and reading through it.)
But today I want to show you step by step how I use actual trading volume to SPOT the Big Money Flow, UNDERSTAND the full picture, REVEAL the reason behind the flow, and then ENHANCE the trade. Here's a full walkthrough...
I wanted to use the example of some Big Money Flow I found in FUBO - Fubotv Inc (NYSE:FUBO) to show my exact process, step by step.
It starts with paying attention to the big block trades. And I mean BIG. I'm only looking for traders buying in MASSIVE numbers - I am talking about buying blocks on options contracts in the 5- or 6-digits.
That means there are millions of dollars on the table for these big-money players.
And there's only one reason why they would bet THAT much money on a play - it's because they know something the rest of us don't.
The biggest trade we saw that morning was a 10,000 lot of FUBO June $1.50 puts that were bought at $0.15. So there's the big volume. SPOT - check.
The next thing I want to do is UNDERSTAND the trade's full picture. Is it simply call or put buying? Are they hedging against another play? Do they own stock and want to balance their portfolio? Is it an open or a close?
We can answer all these questions by looking at the trades going on that day.
We know it's an "open" trade because the interest was only 249 contracts.
Next, we need to confirm that it's a straight options trade. (A lot of time, there's also stock involved with the trade - if someone is hedging or doing a stock replacement trade - and that changes the story). To figure this out, we can look at sales, go to today's date, go to underlying trades, and then what I'm looking for is any huge volumes of stock that match up with the time and purchase of this FUBO block. And in this case, the answer is no.
How do I know that? Well, if this guy or gal had traded stock with these options, they would have needed to buy 250,000 shares for it to trade at delta neutral (0.25 delta x 10,000 contracts x 100 shares per contract), and we don't see that at all; the biggest trade of the day is half that size.
Yes, I know, this is a process, but it's what I do every time I put on a trade.
UNDERSTAND - check.
Next up is to REVEAL the reason Big Money is making the trade. For FUBO, I want to look around to see if there are any other huge amounts of open interest floating around that could tip us off as to what this means.
Looking at volume, there's some big volume for 2024 and 2025, but the only other interest within this trade period is for May, where we can see a big call purchase Monday.
Looking at the stock's price action, we see the stock trading around $1, an earnings date, a nice pop up to $2, and now a bit of a pullback.
Aha, so now the play is revealed. Our trader is buying the June $1.50 puts knowing that, right before earnings, FUBO was $1 and will potentially move back to that price.
After these first three steps of the system, we have A LOT of information. At this point, we want to ask ourselves if we want to make this trade.
Here's what I'm thinking at this point: FUBO might be going lower, is this something I want to get in on? Do I want to get short FUBO?
Spoiler alert: I don't generally like buying puts in $1.50 stocks, so I'm not going to make a play on FUBO and I'm not going to recommend this trade. But we can still apply the rest of our strategy for education's sake.
So, I've SPOTTED the volume, I UNDERSTAND the full picture, and I've REVEALED the reason for the trade. I've hypothetically decided that I want to jump on the back of this Big Money Flor to fade FUBO.
The next step in the system is ENHANCE. This is where we optimize our trade.
What you need to remember is that a lot of these traders are not analyzing where the best value is in an option. In fact, Big Money Traders aren't always professional options traders. They are usually stock traders who know enough about options, but I can bet they don't have the expertise I do with trading options.
And I'm able to improve upon their mistakes by picking the better trade.
Let's start by looking at that June contract. At the time that I recorded this video, FUBO was trading at $1.80.
I can buy the $1.50 puts - 0.25 delta, $0.32 out of the money - for $0.15... OR
I can buy the $2 puts - 0.54 delta, $0.18 in the money - for $0.37.
Which is going to give me the better trade? Which offers the better odds?
I can also look for better contract months. To do this, I want to click through the different expirations and see where the cheapest options are on the board. Depending on the circumstances, I may also consider doing a spread.
These are all the steps I take every time I put on one of these Big Money Flow trades. I know it's a process, but it's one of the best money-making strategies in my repertoire and I do it every day.
The post Discover the Power of Big Money Flow and How It Drives the Market appeared first on The Profit Takeover.
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