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This Options Barometer Tells You What the Hedge Funds Are Doing

In this topsy-turvy market, it helps to know how the big hedge funds and institutions are spending their money. This Options Barometer gives you the answer.

For much of the first quarter I read the market about as well as I could. It was as simple as watching how the big hedge funds and institutions are positioning via options. The results were good: here are my Cabot Options Trader closed positions so far in 2018:

My options trades from the first quarter. It was a very good quarter!

I’m not showing you this graphic to brag. I’m certainly not perfect. No trader is. But if I can get a feel for where the hot money is buying and selling in the options market, more times than not I will be in tune with the market’s direction.

So how do I let my Cabot Options Trader and Cabot Options Trader Pro subscribers know what the hedge funds are doing?

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The Options Barometer

I recently introduced a new feature called the Options Barometer, which I now post at the top of my daily morning email highlighting big options trades. I described this new function to my readers:


“As you look at the graphic, the bull on the Barometer represents a bullish day of options trading, and the bear represents a bearish day. And the more bullish/bearish the day was, the needle will move toward either extreme of the graphic.

“The big advantage of the Options Barometer is that it will give you a quick and straightforward view of the tone of institutional options trades from the prior day. At a glance, you’ll be able to know whether the big boys were positioning on the bull side or bear side (or if there wasn’t much activity at all). Depending on market action, a handful of very bullish (or bearish) days usually has me changing my outlook, so the Barometer gives you a clear view of my interpretation of what’s going on.”

For example, during one of the many market drops in the last month my options scanner picked up on a wildly bullish day of option activity. The needle in the barometer would be fully bullish. Here was that day of option activity:


Seller of 16,000 Citigroup (C) April 65 Puts for $0.92 – Stock at 68.2
Buyer of 20,000 Bank of America (BAC) April 30/32 Bull Call Spreads and Sale of 50,000 April 27 Puts – Stock at 29.5 (bull risk reversal - earnings 4/16)
Buyer of 5,000 Visa (V) May 120/130 Bull Call Spreads and Sale of 5,000 May 105 Puts – Stock at 117.5 (bull risk reversal)
Seller of 2,000 Intel (INTC) April 46 Puts for $0.64 – Stock at 49.5
Seller of 1,000 Nvidia (NVDA) September 205 Puts for $17.55 – Stock at 224
Seller of 7,500 Service Now (NOW) April 150 Puts for $2.65 – Stock at 158
Buyer of 15,000 Microsoft (MSFT) May 94/99 Bull Call Spreads (exp. 5/4) for $1.28 – Stock at 89.75
Buyer of 6,000 ON Semiconductor (ON) April 24 Calls for $1.20 – Stock at 24
Seller of 10,000 Activision Blizzard (ATVI) April 62.5 Puts for $1.18 – Stock at 65.8
Seller of 7,000 (JD) September 37 Puts for $2.49 – Stock at 40
Buyer of 5,000 MGM Resorts (MGM) May 35 Calls for $1.87 – Stock at 34.6
Buyer of 5,800 Biotech ETF (XBI) April 90 Calls for $1.69 – Stock at 87
Seller of 6,000 General Motors (GM) January 32 Puts for $2.17 – Stock at 35.55
Buyer of 6,000 General Motors (GM) January 40 Calls for $1.82 – Stock at 35.6
Buyer of 2,500 Vulcan Materials (VMC) May 120/130 Bull Call Spreads and Sale of 2,500 May 100 Puts – Stock at 111 (bull risk reversal)

Because of this unusual options activity, and despite the weakness in the overall market, I recommended a new call buy. Here was that trade:

“Buy Half a Position: Buy Microsoft (MSFT) July 92.5 Calls (exp. 7/20) for $5 or less.

“The Nasdaq lost 3.24% yesterday, and with it many of the growth leaders that had been holding up fell between 5%-10%. This dropped a couple of stocks that are on my Watch List to levels that I’m becoming more interested in.

“This morning’s option activity, which has been bearish, is showing signs of bullishness. This has come in the form of put selling and call buying. For example, this trade in MSFT, a stock that has been on my watch list:

“Buyer of 15,000 Microsoft (MSFT) May 94/99 Bull Call Spreads (exp. 5/4) for $1.28 – Stock at 89.75

“I’m going to make my first buy in several weeks. However, I am NOT calling a market bottom. There is even growing evidence that the market may be entering a bear phase. That said, because our exposure is so light I am willing to take some risk, and buy half a position today.

“To execute this trade, you need to:

“Buy to Open MSFT July 92.5 Calls

“The most you can lose on this position is the premium paid, or $500 per call purchased.”

A couple days later the market rebounded sharply and we sold half of this position for a quick 25% profit.

More Low-Risk Trades

As you can see, what I am doing is not rocket science—at least not if you know how to read options markets. I monitor what the hedge funds and institutions are doing, and then tag along with a great risk/reward trade.

Speaking of great risk/reward trades, I just released a new report on 10 of my favorite covered call trades right now. The report is aptly named, “Cabot’s 10 Best Covered Calls on Dividend Stocks.” In it, I reveal my 10 favorite trades for increasing your income in a low-interest-rate environment, helping you earn more income from your dividend stocks—some of which you may already own.

Hopefully these low-risk, high-yield trades will continue my hot streak from the first quarter! To read the report, click here.


Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.