A round of analyst upgrades also fuels the stocks climb higher as UBS recently raised their price target on MPEL to $30. Amidst the analyst action in MPEL we have seen a flurry of unusual options activity in the stock. A trader bought 2,500 of the MPEL Aug 9th Weekly 26.5 Calls for $0.35. This represents a bullish order in MPEL ahead of their earnings report set to be released on Aug 7th before market open. The stock has moved 4.2% on average after earnings over the past 8 quarters. The options market is currently implying a move of around 4.7%.
Unusual Option Activity:
We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. At KeeneOnTheMarket.com we scan and analyze order flow from all of the major options exchanges in order to identify any unusual option activity.
Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. The majority of unusual option activity can be traced back to hedge funds, mutual funds, and other large institutions. Knowing where these institutions are placing their bets can be hugely advantageous for any trader. These institutions have informational and technological advantages that the average trader doesn’t have, and the amount of time and analysis that goes into every one of their trades is substantial. We offer this service through our 7 hour daily LIVE trading room http://bit.ly/135QWt8 or through Premium Twitter feed with all entries, exits, and unusual options activity tweeted all day long: http://bit.ly/11f0L9u .
Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock. With this in mind we have developed a 7 step trading plan that helps filter out unusual option activity that will not provide actionable trade setups. It is by using this plan that we are able to identify the most significant unusual options activity trades every day.
The “Institutional Trade”: Today a trader bought 2348 MPEL Weekly 26.5 Calls for $.35
Their Risk: $35 per 1 lot
Their Reward: Unlimited
Their Breakeven: $26.85
Cash Outlay: $82,180
Greeks of this Trade:
Delta: Long
Gamma: Long
Theta: Short
Vega: Long