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If you want to trade options like the Top 1%, then you’ll need a Target Stock Price prior to doing the trade. Unfortunately, most investors struggle to understand how to find one. This article shows you a new and easy way to use Unusual Options Activity to find a Target Stock Price.
Unusual Options Activity
Unusual Options Activity identifies stocks that are attracting the “hot” money, a place where the Sharks like to play. It’s a source of good information that includes the directional sentiment of a stock and the expected timing of any large move. But unbeknown to most traders, Unusual Options Activity uncovers even more valuable information.
What type of information?
Unusual Options Activity can also reveal the Target Stock Price, or at least a narrow range of prices with some level of certainty. How?
Let me explain.
Reversing the Process
The Top 1% sources the best short-term trading ideas in the market. But they don’t come without effort. Embedded in these trading ideas are dozens of research hours, manpower, and significant capital. They focus on the two endpoints defining the risk reward of the trade. Essentially, that means figuring out how much the stock will rise, how much it may decline, and then handicapping the probabilities.
After completing that analysis, the Top 1% decides how to invest capital into the idea. Generally, that’s a choice between transacting in stock or options. If they choose options, the Top 1% then decides which strike offers them the best opportunity to profit given their Target Stock Price.
Once this process is complete, investors can spot these large options trade with an Unusual Options Activity scanner and review the details. And while those details give us some information, the most valuable information about the Trade Idea, including the Target Stock Price, is shrouded in mystery.
Could we reverse the process from the publicly available information back to the Trade Idea and uncover the Target Stock Price?
Maybe we can.
New Options Chain
I’ve created a New Options Chain that is programmed to think like the Top 1% in the world. It does all the risk reward analysis and removes all the guesswork for the user.
In other words, once you have an idea, the New Options Chain helps you determine whether or not you should choose options and then points to the option best suited for your view on the stock.
How does it do this?
The New Options Chain provides the user with the market’s expected Risk Reward Breakeven Price. This is the market’s expected stock price at expiration embedded in the option that balances the risk reward for that particular option.
The New Options Chain analyzes these Risk Reward Breakeven Prices against your unique Trading Idea which includes:
- Target Stock Price
Examples Using the New Options Chain
For example, if I’m looking at AAPL December Expiration with a Target Stock Price for AAPL of $282, and confidence of 80% then the New Options Chain returns me the $265 Strike.
The interesting part about the tool is that you can reverse the process. I could start by asking the question, where do I need to think the stock is going in order to buy the $265 Calls with Edge?
The answer starts with the yellow column, the Risk Reward Breakeven Price (RR$). As a buyer of those Calls, I need my Target Stock Price in between the RR$ of the $265 and $270 Calls ($277.05 and $280.44). This means approximately $278 to $280.
How might reversing the process be useful?
What’s Their Target Stock Price?
There are dozens of interesting Unusual Options Activity trades each day. You can pick any of these Shark trades and reverse the process I just showed you. By working backwards, you find a Target Stock Price range used by the Shark. This is an incredible insight.
For instance, if a Shark bought 20,000 AAPL $260 Calls at $7.60, then his Target Stock Price is between $275 to $278. At $275, you can see the pointer at the $260 Calls.
However, a Target Stock Price of $279 shifts the pointer higher to the $265 strike.
That would give us a Target Stock Price range of $275 to $278. You can do that same exercise with any strike.
Unusual Options Activity points out the options trades that the Sharks are trading. The New Options Chain takes these trades and translates them into a Target Stock Price range that you can further analyze. This prevents you from flying blind and helps you better understand what to expect.
I use Unusual Options Activity to pick 3-5 options per week for the OptionsGeek community. Using techniques like these has produced incredible results. Read the testimonials and then check out this not uncommon example of the Trade Ideas (Spoiler: It was a 600% winner)
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