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[UOA Case Study] 75% Winner in $PDD

Kyle DennisKyle Dennis ·

The fourth quarter is around the corner, are you ready to make it rain?

Don’t laugh.

I know the overall market appears dicey at these levels, driven by rumors and fake news.

But I am a stock specific trader, and my focus is on catalyst plays.

And there is no better forward-looking indicator I’ve found than unusual options activity.

It allows you to get into the trade before the catalyst even OCCURS.  

In fact, earlier in the week I took advantage of an unusual options trade I flagged down in Pinduoduo (PDD).

But before I share the juicy details behind the 75% winner in PDD… here’s an update and some of the positions I’m in currently holding.

Since there are so many UOA trades that go off every day… it’s often hard to separate the ones that can skyrocket from the duds.

You see, even though I use a proprietary options scanner that lets me know where the financial powerhouses are placing their bets…not all trades are the same.

For example, options are used for speculation, hedging, and risk management…but the only UOA trades I care about are the speculative ones.

I’m tracking and placing my favorites onto a watchlist.

How does a stock move from the watchlist to becoming an actual trade?

And what was it in PDD that screamed to get in?

PDD Put Activity: Did someone know ahead of time?

 

Every single day, hedge funds, pensions, money managers, and sovereign wealth funds, use options as their weapons of choice to place bets.

These Wall Street “insiders” often risk hundreds of thousands of dollars — sometimes risk millions — on a single position.

To the untrained eye, these massive bets may appear as “long shots” but as you’ll soon find out… they’re not just shoving their chips just for the thrill of it.

Dollar Ace focuses on unusual options activity on options that are trading for a buck or less.

For example, last Friday, I noticed some UOA in a bunch of stocks.

We saw 1154 PDD October 18 2019 $32 swiped up for $0.95 a pop… when the stock was trading around $34… and interesting play (more on that shortly).

Of course, I let my clients know about them… but there was one thing I mentioned and why the watchlist was so stacked…

I want to be a bit more diversified in the next couple of weeks between puts and calls… because the market has been strong overall, but a bit choppy over the past few sessions.

The whole idea is when you have trades on both sides, you’ll have winners no matter what the market throws at us.

So what did I do?

I looked through the UOA and ran through charts… and noticed some interesting price action in PDD.

Source: E*Trade

The reason why I got into the trade was the fact that I wanted to diversify some of my holdings because the market looked like it was getting tired and just chopping around all over the place.

When you look at the hourly-chart in PDD below, from a technical aspect, it was due for a pullback.

The stock was breaking below its uptrend line… and it was having a tough time staying above the support level at $34.

Once I saw that price action, I quickly scooped up some puts because the charts aligned with the UOA in PDD.

The thing is… the options trader picked those puts up for 95 cents a pop… and I was looking at them the following trading day… and being patient paid off.

You see, I was actually able to purchase those puts for an average price of 72 cents apiece… and being patient paid off.

So what happened with the trade?

The very next day, the stock got crushed…

The reason?

The company announced they were conducting an offering to raise money, which would dilute the company’s shares… sparking the selloff.

Source: Yahoo Finance

I actually took profits the very next morning after I entered the trade… and locked in a 75% winner.

The thing is, had you held onto the position just for a little longer… those options would’ve been worth a whopping 166% more!

The point that I want to get across here is to be patient… and just because you miss out on a trade, it doesn’t mean you should beat yourself up.

Just put it on your watchlist, and see if you can get a better entry… if the thesis still stands.

Additionally, having a balanced attack plan — not being too biased towards one direction — should help you remain nimble and find more money-making opportunities.

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