Unusual Options Activity: A Black Friday Shopping Spree
It wasn’t just Amazon that had a massive sale on Black Friday…
The stock market decided to offer a large price cut across the board, with the S&P 500 falling as much as 2.5%. Small caps fared even worse, dropping nearly 4%.
It was the biggest price drop on Black Friday in over 70 years. Naturally, some traders wanted to go shopping.
But it wasn’t just the traders behind the unusual options activity we highlight each Monday…
Whether it was lucky timing or just a smart move, my 12-year-old son walked into my home office on Friday and said he wanted to buy Airbnb (ABNB).
A few weeks ago, he landed a $400 check for a modeling gig he had. We told him he could do whatever he wanted. It was his money.
Of course, he doesn’t have to pay rent or gas up the car, but still…
He could’ve bought shoes, a new gaming console, or a new iPad. Instead, he came in last Friday and told me to invest it.
This wasn’t a stock recommendation from me either. I let him do the research, which I believe just involved looking at market movers on the day, and he decided on Airbnb. It was down as much as 6% that day.
So, he handed me the check and I bought the stock for him. Only time will tell if it was a good move on his part.
Omicron — the main reason behind this drop — is what they’re calling this new COVID-19 variant.
I can’t even keep up with all the variants at this point. It’s flu season, so we should have expected another rise in cases. But the market panicked nonetheless.
In my view, as long as the U.S. remains open — which they have said would be the case — I like this as a buying opportunity.
My son may have been lucky on his investment, but last Friday’s unusual options activity showed he wasn’t alone.
The Big Money Is Shrugging off Omicron
We saw millions pouring in on bullish bets for individual stocks to rise by the end of the year.
These traders were simply taking advantage of what they believe to be the last big discount for stocks as we head into 2022.
It was Black Friday for the stock market, and they didn’t hesitate.
There was a LOT of notable activity on Friday, so I want to just give you a quick rundown of the biggest bets I saw.
My unusual options activity scanner picked up $1.5 million on Affirm Holdings (AFRM), $550,000 on VMware (VMW), $350,000 on NVIDIA (NVDA), and $305,000 on Charter Communications (CHTR).
There were some bearish bets in the millions too. Most of these were on broad market indexes, like the S&P 500 or Russell 2000, but also on Boeing (BA), Tesla (TSLA), and Yelp (YELP).
That was about all the bearish trades that stood out, though. And most of those index bets were likely hedging their overall portfolios. They were out of the money, so the big money was buying cheaper options and protecting their portfolio from another major collapse. So spending millions there is common.
What isn’t common is all the unusual activity that kept coming up on individual stocks.
Another $2.9m on Avis Budget Group and $2.1 million on Delta Airlines, all betting on a rally into early next year.
And this is exactly what I’m looking for…
The Market Is on Bullish Autopilot
Look, when the stock market is closed for a holiday, it’s usually a bullish period for stocks. The Santa Clause rally — where stocks tend to rise through the Christmas and New Year’s holidays — is the perfect example.
But the reason the markets tend to go higher is due to traders being away from their desks. Essentially, the markets go on autopilot and drift higher.
Well, last Friday, the markets were on autopilot again. Then the worries over rising cases of COVID-19 caused whoever was at their desk to panic and hit the sell button.
As those traders come back to the office this week, I bet they jump right back in and take advantage of the discount in the markets.
My son may have just been lucky. But I think it was a great time for him to invest his own money and see the benefits of trading in the stock market.
At least for now, his Black Friday investment is in good company with the timing.
Chad Shoop, CMT
Editor, Quick Hit Profits
Chart of the Day:
Buy the Black Friday Dip?
(Click here to view larger image.)
It seems my incessant warnings to take a cautious stance in the market have finally borne fruit.
Stocks took a bath in the short Friday session, falling about 2.5% from Wednesday’s high. This comes, of course, in response to the new Omicron variant of COVID-19 spreading throughout the world.
Here we go again? Or, was this Black Friday sale worth buying?
Well, the SPDR S&P 500 ETF (SPY) is set to open right at the top of Friday’s session high today. If we seem some carry-through and optimism, we could easily erase Friday’s ugly losses.
If we see such a reversal, we’d also get further evidence of the 50-day EMA acting as a strong support level for SPY.
But stocks aren’t exactly at fire-sale prices here. If you weren’t buying on Friday, you’re looking at much less favorable prices today.
My gut tells me to lean bullish here, with a close eye on the various moving averages above.
One should never underestimate the power of a panic, and any major government action on Omicron could easily cause another one.
In price action terms, a panic means a bearish cross of any of the above moving averages — the 50-EMA crossing the 20-EMA, and especially if they cross the 100-MA — on the daily chart.
We haven’t seen a move like that since the March 2020 crash. And if you sold stocks when that cross happened back then, you would’ve sidestepped a 28% fall.
Managing Editor, True Options Masters