Target Stock Price & Unusual Options Activity

Mr. Hedge Fund Manager, I Know What You’re Thinking

How to use Unusual Options Activity to get a Target Stock Price

In this article, you'll see how to use a simple options order to extract the most valuable information you can retrieve - the Target Stock Price being used by the Hedge Fund Manager making the trade.

OptionsGeek UOA Scanner

With readily available tools and all the data imaginable, the average investor can see all the Unusual Options Activity (UOA) each day. What you might find is something that looks like our Unusual Options Activity Scanner:

Tools Home - UOA

In this pool of data, there are options trades done by the biggest and most profitable Hedge Funds in the world. Behind each of those trades is a thought process and the use of enormous resources that only a multi-billion dollar Hedge Fund could allocate.

>>> See where the Top 1% Gain their Edge

More importantly, these Hedge Funds are only using options when:

  • Their confidence is highest.
  • The risk-reward is in their favor.
  • They can leverage an idea to maximize their profits. 

In other words, these are the most explosive ideas in the market!

Analyzing the Trades

At OptionsGeek, I've developed tools that allow you to dig deeper into these trades and analyze them.

The analysis process is ultimately what reveals the story behind the trade and helps answer the question:

Why did the Hedge Fund buy this option?

Unfortunately, that simple question isn’t so simple. Sometimes the answer is obvious i.e. an earnings play, and sometimes it’s not. Either way,  you usually get your answer by the time the trade expires. Oftentimes, you realize that the Hedge Funds buying that option had found information that you could never get your hands on. 

But there’s another question you should have:

Where does the Hedge Fund think the stock is going?

Now, most people would think this question is another hidden secret known only to the buyer of the option, right?

Well, it certainly is not widely known.

However, by understanding what Hedge Funds are looking for and their process of choosing the right option to leverage an idea, we can back out a very good approximation of their Target Stock Price.

That’s right!

The Hedge Fund’s choice of option reveals what he’s thinking.

The New Options Chain

You see, I’ve created the New Options Chain that thinks and analyzes a trade idea just like the top investors in the world.

NOC Target Stock Price 2

It’s simple.

You just input your expectations into the system, hoping to land the pointer within the unshaded area. That strike price would be the best option for you to buy given your unique view on the stock.

It would also be the strike price used by the Top Hedge Fund managers if they shared a similar view. Remember, the machine was built to think like them!

NOC Target Stock Price 3

Here’s an example:

Let’s assume that with a reasonably high confidence, I think XLNX will go to $100 by October 18th. In this case, the New Options Chain tells me that the $95 Call Option is the right play for me. And, since the tool is built to analyze the choices like the top Hedge Fund Managers do, then this is the option they would buy given the same view.

A 2-Way Function

Now, take a look at the New Options Chain’s function:

Trade Idea (Target Stock Price) => New Options Chain => Strike Price

NOC Target Stock Price 4

This means that given a trade idea with a Target Stock Price, Confidence level, and Expiration, the New Options Chain returns you the right option to buy with the best risk reward.

Now, we can go in reverse!

You can also think of the New Options Chain as a two-way function where given a specific option, it can return you a Target Stock Price within a tight range:

Trade Idea (Target Stock Price) <= New Options Chain <= Strike Price

NOC Target Stock Price 5

Simply put, if you can pinpoint a specific option being bought by a large Hedge Fund, then the New Options Chain can back out their Target Stock Price range. That range (highlighted in red) will be found in the yellow column labeled “RR$,” which stands for the Risk-Reward Breakeven Price.

NOC Target Stock Price 6

So, let’s assume that we found this “unusual” trade today.

Almost 8,000 XLNX October 18th $95 Calls were bought for $1.64. The size of the trade alludes to a large institution, which means the buyer is thinking of a price higher than $99.26. Since you won’t know exactly the price, you can play around with the expectations area (Target Stock Price and Confidence) to get a range.

In this case, you will find that a Target Stock Price of $99.50 to $100.50 is the approximate range for this option given an 80% confidence.

To give you more context, at a Target Stock Price of $101, the machine would guide you toward the $96 Calls.

But...

The Hedge Fund Manager didn't buy the $96 Calls. He bought the $95 Calls.

So, it's likely that $101 is a little high for him.

Now, what?

First, try confirming what he sees with your own charts.

And second, start digging into why he might believe that.

For more insights, go to 3 Steps to Profit.

Target Stock Price & Unusual Options Activity

Mr. Hedge Fund Manager, I Know What You’re Thinking

How to use Unusual Options Activity to get a Target Stock Price

In this article, you'll see how to use a simple options order to extract the most valuable information you can retrieve - the Target Stock Price being used by the Hedge Fund Manager making the trade.

OptionsGeek UOA Scanner

With readily available tools and all the data imaginable, the average investor can see all the Unusual Options Activity (UOA) each day. What you might find is something that looks like our Unusual Options Activity Scanner:

Tools Home - UOA

In this pool of data, there are options trades done by the biggest and most profitable Hedge Funds in the world. Behind each of those trades is a thought process and the use of enormous resources that only a multi-billion dollar Hedge Fund could allocate.

>>> See where the Top 1% Gain their Edge

More importantly, these Hedge Funds are only using options when:

  • Their confidence is highest.
  • The risk-reward is in their favor.
  • They can leverage an idea to maximize their profits. 

In other words, these are the most explosive ideas in the market!

Analyzing the Trades

At OptionsGeek, I've developed tools that allow you to dig deeper into these trades and analyze them.

The analysis process is ultimately what reveals the story behind the trade and helps answer the question:

Why did the Hedge Fund
buy this option?

Unfortunately, that simple question isn’t so simple. Sometimes the answer is obvious i.e. an earnings play, and sometimes it’s not. Either way,  you usually get your answer by the time the trade expires. Oftentimes, you realize that the Hedge Funds buying that option had found information that you could never get your hands on. 

But there’s another question you should have:

Where does the Hedge Fund
think the stock is going?

Now, most people would think this question is another hidden secret known only to the buyer of the option, right?

Well, it certainly is not widely known.

However, by understanding what Hedge Funds are looking for and their process of choosing the right option to leverage an idea, we can back out a very good approximation of their Target Stock Price.

That’s right!

The Hedge Fund’s choice of option reveals what he’s thinking.

The New Options Chain

You see, I’ve created the New Options Chain that thinks and analyzes a trade idea just like the top investors in the world.

NOC Target Stock Price 2

It’s simple.

You just input your expectations into the system, hoping to land the pointer within the unshaded area. That strike price would be the best option for you to buy given your unique view on the stock.

It would also be the strike price used by the Top Hedge Fund managers if they shared a similar view. Remember, the machine was built to think like them!

NOC Target Stock Price 3

Here’s an example:

Let’s assume that with a reasonably high confidence, I think XLNX will go to $100 by October 18th. In this case, the New Options Chain tells me that the $95 Call Option is the right play for me. And, since the tool is built to analyze the choices like the top Hedge Fund Managers do, then this is the option they would buy given the same view.

A 2-Way Function

Now, take a look at the New Options Chain’s function:

Trade Idea (Target Stock Price) => New Options Chain => Strike Price

NOC Target Stock Price 4

This means that given a trade idea with a Target Stock Price, Confidence level, and Expiration, the New Options Chain returns you the right option to buy with the best risk reward.

Now, we can go in reverse!

You can also think of the New Options Chain as a two-way function where given a specific option, it can return you a Target Stock Price within a tight range:

Trade Idea (Target Stock Price) <= New Options Chain <= Strike Price

NOC Target Stock Price 5

Simply put, if you can pinpoint a specific option being bought by a large Hedge Fund, then the New Options Chain can back out their Target Stock Price range. That range (highlighted in red) will be found in the yellow column labeled “RR$,” which stands for the Risk-Reward Breakeven Price.

NOC Target Stock Price 6

So, let’s assume that we found this “unusual” trade today.

Almost 8,000 XLNX October 18th $95 Calls were bought for $1.64. The size of the trade alludes to a large institution, which means the buyer is thinking of a price higher than $99.26. Since you won’t know exactly the price, you can play around with the expectations area (Target Stock Price and Confidence) to get a range.

In this case, you will find that a Target Stock Price of $99.50 to $100.50 is the approximate range for this option given an 80% confidence.

To give you more context, at a Target Stock Price of $101, the machine would guide you toward the $96 Calls.

But...

The Hedge Fund Manager didn't buy the $96 Calls. He bought the $95 Calls.

So, it's likely that $101 is a little high for him.

Now, what?

First, try confirming what he sees with your own charts.

And second, start digging into why he might believe that.

For more insights, go to 3 Steps to Profit.