Dollar-option-trader.pdf

— INTRODUCTION —

Source: Reuters

Source: The Wall Street Journal

Source: Bloomberg

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The headlines above are just one reason why the average person despises Wall Street. Many of them believe the game is rigged— limiting the small investor any chance at success in the stock market. While it’s true, Wall Street banks and insiders have greater access than we do when it comes to: research, analytics, computing power, contacts, and capitaI. However, I’ve discovered a way to level the playing field by using options. In fact, the strategy I’ve developed allows me to ethically steal Wall Street’s best ideas and make them mine. How is it possible? Whenever someone places an options trade in the U.S. options market— they must report it within 90 seconds to the Options Price Reporting Authority (OPRA). That’s right, whenever you place an options trade whether its 10 contracts or 10,000 contracts—buy/sell orders, volume, and time must be reported to OPRA. For the last few years I’ve been studying “unusual options activity.” And even more recently, I’ve started generating substantial profits by adopting this forward looking indicator. The results have been nothing short of phenomenal. And that means a lot coming from a guy who has already banked over $7,000,000 in trading profits from the stock market (before my 30th birthday). IMAGINE WAKING UP EVERY MORNING AND YOUR TRADE IDEAS ARE FED TO YOU.

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Not by some average Joe trading from his mom’s basement— but from accomplished institutional traders and insiders—telling which stock they like, where they think it can go, and by when. Heck, my proprietary options scanner tells me in real-time which options contract “the smart money” is trading and at which price they are getting in. Some of these winners they pull off are so outlandish—millions of dollars thrown at long shot bets that just happen to hit for MONSTER returns and with SIZE—timing and execution so perfect—you’d think these traders were playing the game with loaded dice. A FOOL AND HIS MONEY ARE SOON PARTED… So why are informed traders putting on positions that even the most degenerate gambler would pass on? Well, I’m not here to start any conspiracies. But, it’s no secret that Wall Street professionals and corporate insiders have access to better information than us. While we all have access to the same public information, they can afford to hire armies of analysts and traders to make sense of it all—what may appear like market noise to you and I, can be a red-hot signal—and an opportunity for them for a quick money grab. After all, how can you explain timing so impeccable? Source: The Wall Street Journal

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Who wouldn’t want to know about action so hot? It’s like having tomorrow’s financial section of the newspaper—a day in advance. Here are some of the other benefits you can get from trading off unusual options activity: ♦♦ You don’t have to worry about idea generation (what to trade and when it’s given to you) ♦♦ You are following REAL MONEY—not all trades are winners but all of them have real size behind them ♦♦ Explosive profit potential—it’s not uncommon to return triple-digits on a trade in as little as an hour when you nail a UOA trade ♦♦ Plenty of trades to choose from—there are UOA trades every single day the market is open. It’s perfect for the active trader or for someone who likes trade ideas but not necessarily taking them all. I like it because of the profit potential—risk to reward they are some of the best returns out there. And boy is it fun… It’s like looking over the shoulder of some of Wall Street’s sharpest minds and trading alongside them. I’m excited to show you how it all works, and how I trade this niche but profitable style of options trading… but first, I’d like to get you up to speed with some basics of options. If you already feel comfortable with options then you can skip the next section.

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OPTIONS CRASH COURSE I didn’t start trading options until my third year as a trader. While I didn’t write this to be a “how to trade options” guide, I think I should cover some basics before I get into details about unusual options activity and my unique approach to trading them. An option is a contract between two parties, the buyer and the seller. There are two types of options, call and put options. A call option gives the buyer the right to purchase stock at a specified price and date. REMEMBER

The call buyer has the right but not the obligation to convert their options into stock. In other words, you are not locked into an options trade, you can get in and out as often as you’d like before that contract expires. Example: Starbucks $88.37

The options depth ticket above is for $90 calls in June 2020 (expiration June 19th).

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On the left hand side, you’ll see the various exchanges that are offering the contracts. The bid is the price the buyer is willing to pay for the options. If you look at the AMEX exchange, there is someone bidding for 5 contracts (BS) at $6.50 (Bid). On the other side, the sellers are offering 14 contracts (AS) at a price of $8.35 (Ask). These contracts expire in 264 days. If the buyers and sellers can agree on a price then a transaction is made. And within 90 seconds that transaction must be reported to OPRA. Each option contract leverages 100 shares. So let’s assume, we bought one contract. It would cost $8.35 (if we paid the ask). If you multiply that by 100, the total cost for the contract is $835. Of course, $835 is a ton of cash to shell out for one measly contract, I typically trade options that are priced for a buck or less. But more on that later. Now, as the buyer, we have the right to convert this options contract into stock but not the obligation. However, if you hold the contract till the expiration June 19, 2020 and it closes “in-the-money” by at least one penny then you’ll automatically be exercised and assigned the stock. As a trader, I want to be in and out of my trades for a profit as quickly as possible.

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I have no intention of holding an option and later converting to stock, but you should be aware of what the rules are if you are going to trade them. Since buying a call option is a bullish bet let’s see how this trade can make money. Options are wasting assets. At expiration, they will either expire worthless or close “in-the-money” The $90 calls are “out-of-the-money.” If today was expiration they’d expire worthless. So where does the $8.35 premium value come from? Options are a derivative of the underlying instrument, in this case, Starbucks stock. When you trade a stock the only factor that matters is its price action. If you buy Starbucks at $89 and it goes to $90 you make money… if it drops to $88 you lose. It’s very straightforward. However, options are priced on a probability model. The factors that are involved in pricing an option include: the stock price, strike price of the option, expiration date, dividend and volatility. You can input all these factors into an options pricing model except one—volatility. The forces of supply and demand dictate the price of an option and therefore drive implied volatility. If buyers are hammering away at a call or put option that will cause a dramatic spike in the options volatility.

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And that’s where options can get tricky for some folks. For example, someone could buy a call option, have the underlying stock price rise, but have their call option lose value. How? Maybe implied volatility dropped...Or because of the time decay...heck, it could even be that the strike price was too far out that it didn’t impact the price of the option as much. That said, the $90 calls have an $8.35 premium attached to them because of the time value. Even though the stock is “out-of-the-money” there is still a chance it can get there within the next 264 days. Now, take a look at the same option strikes but ones expiring in 12 days.

As you can see, the premiums are significantly lower. And that’s mainly because of the time factor involved. When you’re trading options, you need to remember to keep an eye on implied volatility, time till expiration, and the stock price action.

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I keep my unusual options trades simple—I stick to buying calls or puts. HERE’S WHAT YOU NEED TO KNOW WHEN YOU BUY AN OPTION: Call Buyer: A bullish bet, the position gains value when the stock prices rises and implied volatility rises. Time works against the call buyer, as you saw above with the examples of $90 calls in SBUX. Put Buyer: A bearish bet, the position gains value when the stock price declines, and implied volatility rises. Time works against the put buyer, the same as for the call buyer. However, if the trader is long stock and buys puts, then it’s not necessarily a bearish bet. Instead, the trader is hedging their position. That’s making UOA trades based on put buys harder to read. The other types of orders that are important to know about when trading UOA are: Selling Calls: When a trader sells calls they are making a bearish bet. The position gains value when the stock stays put or declines. When you sell an option, you collect a premium, time works in favor of the premium seller. The profit potential is defined on the trade, but the risk is not—making it one of the riskiest strategies in options. However, if the trader is long stock and sells calls against it, then it wouldn’t necessarily a bearish bet. And that’s why I UOA trades that involve calls sold on the bid-side harder to read than other order types. Selling Puts: When a trader sells puts they are making a bullish bet on the stock. The position gains value when the stock price rises or stays in range. Since this is a strategy that collects premium, the profit potential is defined. Time works in favor of the premium seller. As well as, a drop in implied volatility.

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Of course, there are plenty of other options strategies, stuff like spread and vol trading, but you won’t need to know them to trade unusual options activity the way I do. The options strike price can be categorized as:

In-the-money: these options have intrinsic value, meaning at expiration they will convert into stock. Example:

The in-the-money options in the image above are the $232.50 and the $235 calls. The stock is trading at $236.41. If you subtract that from $235 you get $1.41. That $1.41 difference is called the intrinsic value. The value of the option at expiration. However, if you look at the bid/ask spread on the $235 calls you’ll notice that they are going for $3.30 bid at $3.60.

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Where does that extra $2 in premium come from? Option traders call it the time value. There is a time and probability component in pricing options and that is reflected in the options premium. One more example: If you take $236.41 and subtract that by $232.50, you get $3.91. If you look at the bid/ask spread for those options you’ll notice that it’s at $5 by $5.25. In other words, there is about $1.34 in time premium in these options and $3.91 of intrinsic value. DOLL AR OPTION PRO TIP

As an option gets deeper in-the-money the more it will move like stock because it will mainly be composed of intrinsic value. Out-the-money: These options only have time value. And at expiration are set to expire worthless.

In the above example, the $237.5 and the $240 calls are considered out-the-money.

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The $240 calls are going for about $1.13, however the stock would need to move $4.72 by expiration just for this trade to break-even. It’s considered a longshot when you consider it has fewer than five days till it expires. However, it’s these type of orders that I especially care to pay attention to the most. Good money doesn’t usually chase bad… so if I see some massive options activity on out-the-money options...I ask myself questions like: What could they possibly know. I’m also interested in at-the-money options. Why? Because these have tons of time premium in them. In other words, if a blockbuster options trade goes off and it’s at-themoney it tells me that the traders need to see action and it has to come fast because at-the-money options are sensitive to movements in time, volatility, and movements in the underlying stock.

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WHY OPTIONS It’s no secret, options provide leverage. There are very few games in town that can offer as much upside as the options market: Source: Bloomberg

The Starbucks calls below allow you to control 100 shares of stock for just $89 bucks per contract.

Compare that to the $8,837 it would cost you to buy 100 shares of stock. Of course, the stock doesn’t have an expiration period. But, you can see how powerful options can be when a sophisticated and informed trader gets their hands around them. The leverage is just insane.

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And do you know why else the “smart money” loves buying options? When they buy an option the risk is limited to the premium spent. In other words, they can slap on a monster position and sleep like a baby because risk on the trade is defined. Take an informed trader,give them leverage… and just watch the money pile up. The whales in the market— pension funds, hedge funds, banks, and ultra-wealthy investors love options because it’s one of the fastest ways to build a position. Imagine a billion-dollar hedge fund wanting to build a position on stock that only trades 300,000 shares of daily volume. It’s hard to build a stake in something so small without making some noise and affecting the stock price. Sure, there are algorithms they can set up that can buy shares slowly throughout the day so it doesn’t appear unnatural. But why bother when they can call their broker on the phone and execute a large options block trade—fast and easy. Options provide a superior return on capital,and the Wall Street Pro’s know it. I’m not kidding. While we may never see Netflix’s stock price double overnight… I see it happen all the time in NFLX options.

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And that’s what options do… they open the game up to trade anything. If you have a small account you’ve probably dismissed the idea of trading stocks like Microsoft, Apple, Amazon, and Facebook… But guess what? With options, you can trade those companies and thousands of others. Not only that but with options you can be extremely flexible. For example, the most active stock options have contracts that expire every week, while the most popular even have contracts that expire every couple days. Why is this important? Well, if you are an options buyer, you can limit the amount of time premium by trading nearer dated options. It also means you can be precise and play for the move you want. None of this was possible a decade ago, but improvements in technology, and the improved efficiency of the market has made trading options a viable asset to trade. Gone are the days of liquidity concerns—millions upon millions of option contracts trade per day. Some with spreads so competitive, that the bid/ ask spread can be as tight as a penny wide!

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UNUSUAL OPTIONS ACTIVITY: PAST, PRESENT, AND FUTURE Options trading was primarily conducted on the floor of the Chicago exchanges through a form of trading called open outcry—which reigned supreme for decades until everything eventually went electronic.

While I wasn’t around to witness its heyday, I’ve watched films and listened to the traders describe their experience. Men and women screaming in a pit, matching up orders between institutional buyers and seller...in a cut-throat… fast-paced environment. Plenty of them had bonafide edge. Some traders were able to make a fortune by simply following the order flow. For example, if they saw a big order about to go off they would step in front of it or take the same trade immediately after. Makes sense right?

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If you see someone blast off an astronomical options trade right in front of you...you’re probably thinking that trader knows something. You could try to figure it out, or just jump in and ride the wave. And that’s what a lot of them did, they followed the order flow. As technology evolved so did trading. Today, most option trades are placed electronically and through an “off the floor” broker. However, that doesn’t mean you can’t participate in options order flow trading. In fact, technology has made it easier to identify the whales in action— and swing along with them. I use a proprietary options scanner developed by some real options nerds based in New York City. With it, I’m able to create customized filters and search for unusual options activity orders that I care about— options which are priced at a buck or less. More on my Dollar Ace Strategy later. But first, let’s define what unusual options activity is.

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UNUSUAL OPTIONS ACTIVITY DEFINED We live in a data-driven world. In the world of trading— information is an edge. Unusual option orders are ones where current option volume exceeds the daily average. McDonalds (MCD), on average, trades around 23,000 contracts per day. Netflix, on the other hand, trades over 200,000 contracts per day. Unusual options activity is a relative term. While size matters, it’s relative size that matters most. For example, we may see a flurry of options being traded in NFLX. But if you know that it trades on an average day, 200K then you’d have to see the total volume exceed that to consider it unusual options activity. WHAT IS OPTION VOLUME? Every time a place is traded during the day it’s included in the daily volume. Not everyone closes out there options position daily, those outstanding contracts are referred to as open interest. MORE ON THAT L ATER… BUT HERE ARE SOME EX AMPLES OF UNUSUAL OPTION ACTIVITY: On Friday, September 27, 2019, over 57,000 contracts of MSG Networks was traded (MSG). On a typical day, MSG only sees about 4400 options trade. That Friday, we saw 12.9 times unusual options volume. On the same day, 1220 options contracts of Retail Properties of America

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(RPAI) traded. Its average options volume per day is only 13 contracts. So despite only 1220 contracts being traded… this was a relatively monster order in RPAI… In fact, it was 94 times usual options activity! Whenever you hear anyone discussing unusual options activity, it is a comparison of actual orders compared to the average. A large order alone doesn’t qualify as an unusual options activity trade. For example, over 2 million options of SPY trade per day, if 2 million contracts trade today then its not unusual. In fact, it’s right in line with its average. On the other hand, when a trader scooped up over 2,000 contracts of Investors Bancorp (ISBC) traded on October 17th, 2019 it was a relatively massive order—because on a typical day, ISBC only trades about 100 contracts per day! WHAT IS OPEN INTEREST? Whenever the buyer and seller agree on a price a trade is executed. Every option strike has its own volume numbers. Exmaple:

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The above image is of an options montage in Apple Inc. (AAPL). On this day of trading we saw 200 of the Nov 8 235 calls trade. You can see that on the left hand side. To the right you’ll notice a column labeled open interest. Open interest refers to all the outstanding contracts. While 200 of the 235 calls traded, we see that there are 1,525 calls of open interest. Were the 200 calls that traded new positions or where some of them closing trades? Every morning the volume numbers reset and the open interest changes. If they were new positions than the open interest would rise. If they were closing trades then the open interest would decline. Of course, it could also be a mixture of new positions and close-outs. VOLUME AND OPEN INTEREST AS IT PERTAINS TO UNUSUAL OPTIONS ACTIVITY If a trader comes in buys 10,000 calls of AAPL 235 calls it’s going to get a lot of people’s attention. However, if there are 15,000 contracts of open interest on 235 call line then we don’t really know if this is an open position or a trade to close. DOLL AR OPTION PRO TIP

When trying to spot unusual options activity orders to trade, it’s best to find options where the volume exceeds the open interest. That way you are assured to be trading something with fresh action in it. You can find all this information on your brokerage platform on the options montage.

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The options montage tells you all the different option contracts and strikes available in an underlying stock. It gives you the bid/ask information, as well as, the volume and the open interest. It also includes implied volatility and option greeks for more sophisticated traders. Example of an options montage from the thinkorswim platform:

The image might not be clear, but the above montage covers every options series on Netflix (NFLX). Options that expire in less than a week to options that expire till the year 2022. The setup above tells me: volume, open interest, bid, ask, and strike price for all calls and puts on NFLX options. Not only stocks have options. And not all stocks have weekly options (options that expire in a week or less). However, many of the most popular companies to trade have issued weekly options.

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The layout above tells me the last price, and the overall change in the price of the options. As well as the strike price, and the bid and ask. You don’t need any high-tech software or data service to direct you to where the options action is—you can find it on the options montage. However, if you want to trade unusual options activity, then you’ll need access to a real-time service to take advantage of the opportunities. Why is that? Because institutional traders are savvy. They know that if they put on a large block trade it’s going to send alarms to the rest of the market. Instead, they break up their order into tiny ones to make them look insignificant. For example, on October 21, 2019, the proprietary options scanner that I use to detect unusual options activity flagged a relatively large options block trade in Twitter (TWTR). A trader came in and bought 3200 TWTR Dec 42 Calls for $1.83. The total cost for the out-the-money options was a whopping $590K in options premium.

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However, here’s the thing. The order actually looked something like this:

Several smaller orders sprinkled across the various options exchanges. While most brokerage platforms will show this trade as a series of smaller orders. My options data service provider detects it as one large options order called an options sweep. An options sweep is an options order that places trades across a series of exchanges as an attempt to disguise the impact of the trade. The proprietary options scanner I use is sophisticated enough to recognize the order as one vs. a series of tiny orders.

Source: Trade Alert

Here are two examples of option sweeps, as well as, the information it gives traders. OPTIONS SWEEP EX AMPLE ONE: 2500 SE Dec 28.0 Calls $2.15 ASKSIDE [MULTI] 09:31:19.622 IV=54.5% +3.9 PHLX 161 x $1.70 - $2.15 x 608 PHLX SWEEP / OPENING Vol=5001, OI=106 At the time of the trade, the bid/ask spread was $1.70 by $2.15. The trader came in and bought 2500 call contracts at the ask side.

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What does that tell us? ♦♦ It’s an aggressive order. The trader is willing to pay up for the options to get in. Think about, institutional traders have access to the best execution on the Street. They can call a broker on or off the exchange to work their order and get a reasonable price. But here, they just went for it, paying top premium. ♦♦ This is most likely a buy, since it was on the ask-side. ♦♦ Implied volatility rose, as demand for options increases so does the implied volatility. ♦♦ It’s an opening position because the volume exceeds the open interest ♦♦ This trader splashed the pot, spending more than $537K in options premium.

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OPTIONS SWEEP EX AMPLE TWO: 2000 FRPT Nov 50.0 Puts $2.086 Above Ask! [MULTI] 09:50:40.710 IV=59.7% +5.6 ARCA 3 x $1.70 - $2.00 x 31 NOM SWEEP / OPENING Wow! This trader was so aggressive that they paid above the ask price to make sure they get the size they wanted. At the time of the trade, the spread was $1.70 by $2.00. Despite this order being a put trade, you’ll notice several of the same characteristics as the SE example. ♦♦ Spike in implied volatility (IV) ♦♦ Aggressive order ♦♦ Big money— over $417,000 in options premium

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UNUSUAL OPTIONS ACTIVITY: DECIPHERING THE GOOD FROM THE BAD While I do use an options scanner that helps me flag down unusual options activity, there is still a lot more work that goes into trading off the strategy than just copying big option trades. or example, there are literally thousands of large option block trades that get executed every single trading day. If you were to take all of them, you’d probably run out of capital within the first ten minutes of the trading.

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Not only that, but not all unusual options activity trades are based on speculation. For example, traders can buy puts—which appear bearish. But we don’t know what is in their portfolio, what could seem like a massively bearish position could actually just be a hedge because the trader is long the stock. You never know for sure what the “smart money” is doing with options. However, there are “tells” that we can use to spot the very best unusual options activity. Let’s take a look at them: Size: When it comes to unusual options activity, we compare options volume to its average. For example, check out this order in ZAGG Inc. (ZAGG) 570 ZAGG Dec 7.0 Calls $0.676 ASKSIDE Now it doesn’t look like much, but ZAGG only sees about 178 contracts per day. On October 22nd, we saw over 46 times unusual options activi-

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ty in the name by the afternoon, as a whopping 13,000 contracts traded. Now, just because on stock may have 40x UOA and another may have 3X UOA, doesn’t necessarily mean the larger one is better. Option Strategies: While option trades can be done for a number of reasons, the only type of UOA trades I’m interested in are for pure speculation. They are typically outright call buys, or outright put buys. I don’t care much for combination trades, or strategies that involve premium selling for UOA. Interesting: 9000 ET Jan 14.0 Calls $0.24 ASKSIDE; 1500 ALLT Nov 7.5 Puts $0.45 ASKSIDE Not interesting: 360 MO Oct 25th/Nov 45.0 Call Spread $0.73 BID CBOE vs 7200 MO $46.1390 QD 13:33:16.317 MO=46.13 SP_500 = 360 Oct 25th 45.0 Calls $1.23 (FT Theo=$1.24) MID 13:33:16.317 = 360 Nov 45.0 Calls $1.96 (FT Theo=$1.97) BID 13:33:16.317 = 7200 block traded at $46.1390 13:33:17.839 Ideally, you want to avoid anything that looks complicated and stick with trades that appear to be either clear long (or short) plays. Opening: While we can never be sure of what the “smart money” is doing, we can tell when they are putting on new positions. All you need is volume and open interest data to figure that out. When volume exceeds open interest, we know its a brand new position. Example: 9500 MRK Jan 87.5 Calls $0.95 ASKSIDE Vol=10k, OI=8383 Strike Price: When it comes to strike price selection I like options that are either at-the-money or out-the-money. Why? Well an in-the-money option is sometimes used as a stock substitute, and already has intrinsic value. However, an out-the-money option is set to expire worthless, unless

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something happens in the stock. I like that, if the most informed traders are placing trades on “long shots” it might be a tell that they know something no one else does yet. Example: 500 KODK Jan 5.0 Calls $0.10 ASKSIDE KODK=2.69 The trader needs a massive move in KODK in order for these options to go in-the-money. It’s speculative trades like this one that I find to be among the most compelling UOA setups. Timing: You can buy options that expire as early as a day or as far out as a couple years. However, when it comes to trading UOA the closer to expiration the better. Why? Because you know a move is either going to happen fast or it’s not. Who wants to stay in a position for potentially months in hopes a catalyst hits? I’m looking for fast returns, and near dated options give me the best to achieve that. Example: 6098 CRM Oct 25th 145 Calls $1.40 Above Ask! Expiring in two days Avoid Earnings Trades: Often you’ll see large option trades go off on a stock set to have earnings soon. To the naked eye it may appear like UOA but it’s really not. For example, an earnings event is usually the risky period for someone to be a stockholder. It’s often a binary event—you’ll either profit huge or taking a beating. And that’s not how the “smart money” trades. Instead, they will buy puts (that appear bearish) to hedge. Or they’ll reduce the size of their stock position or close it out entirely and buy risk-defined call options (which may appear bullish) but is really just a

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stock substitute. Example: 1192 SNAP Oct 25th 11.0 Puts $0.12 ASKSIDE [MULTI] 12:53:23.187 IV=214.1% +11.8 Pre-Earnings Earnings today After Close Nature of the Order: If you are a buyer of options you can either buy at the ask price, or you can place a limit order in which you’ll only get executed if the price of the option falls to your price. I don’t really care about orders that are filled mid-market or on the bidside. I’m looking for buyers, spefifically aggressive buyers who get filled at the ask price or above the ask. Example: 500 MGM Nov 1st 29.0 Calls $0.39 Above Ask! Volatility Moves: Options prices are driven by the forces of supply and demand. When option demand increases so does the implied volatility and the price of the option. Big option block traders are known to lift volatility higher. I want to see implied volatility spike because to me that indicates that it’s a buyer. Dollar Impact: While relative size is important, sometimes there are option orders so massive that you simply can’t ignore. I’m talking about the monster six-figure and seven-figure long shot bets. 6098 CRM Oct 25th 145 Calls $1.40 Above Ask! $854k premium. Lastly, the charts have to align. In other words, all the above factors can meet my criteria, but if the chart doesn’t make sense I may pass on the trade. Which you’ll learn more about the case studies section. But now, I want to tell you about one of the most important factors that play into my decision making process—the price of the option—I ONLY WANT TO TRADE OPTIONS THAT ARE PRICED AT A DOLLAR OR LESS.

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WHY TRADE OPTIONS FOR A BUCK OR LESS Remember, all of the options I’m trading are going for less than a buck. That allows you to get a lot of leverage and get your dollar’s worth. So why options less than a buck? Let me put this into perspective. You have a $20 stock and you want to buy 500 shares. That would cost you $10,000 — $20 X 500. The stock goes up a buck… you make $1,000. Simple math. However, if you can spot some bullish unusual options activity on the stock, you could easily find calls trading for under a buck. So let’s say we see some call activity for $1 (generally I’ll find option contracts for much cheaper). You could control 1,000 shares of that stock for a measly $1,000 — a fraction of the cost if you were to buy shares. For some reason when traders talk about their positions, they tend to talk in dollar terms. In other words, they want to make $XXXX on a specific trade setup. However, that’s the wrong mindset to have in trading. When we deal with trading… it makes sense to talk in percentage terms. Why?

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Let’s say you chose to trade the stock instead. A 10% move (which is considered a lot for some stocks) on a $20 name would get you $2,000 if you owned 1,000 shares. You might think to yourself, that’s $2,000 in my pocket. That measly 10% move could cause the calls to spike up by a significant amount… in percentage terms. You might think a move from $1 to $2 isn’t a whole lot… but when you’re talking money wise, you just doubled up — it’s not crazy to see these Dollar Ace setups to move more than 100%, and you’ll see that in a later section. So if you put in $1,000 you make $1,000. From that standpoint, you efficiently use your capital… and would still have a lot of capital to work with… essentially, if you find 10 trades… you would be able to get into all of them and the potential return Well, if you don’t have a lot of capital to work with, buying stock will eat at your buying power. So if you have a $25K account and try to purchase $10,000 worth of stock… you’ve used up half your stack. However, if you just use $1,000 with a $25,000 account… you have a lot of room to work with. For those who don’t know the importance of percentage returns yet, let me show you with a quick example.

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Check out the daily chart in EXEL. If you bought a measly 1,000 shares at $19.50… you would’ve spent $19,500... and you wouldn’t even had made $1,000 at the high point that day. However, the call options were a different story. I purchased EXEL October 18 2019 $22 calls for less than a buck a piece… a measly 48 cents to be exact. You might think, Kyle how much am I going to make buying 48 cents options? Well, let’s say you placed a $1,000 bet and assume you bought at 50 cents. You could’ve purchased 20 options contracts and you would control 2,000 shares.

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That same day… the stock moved about 4.5% that day at its highs… and that means if you actually put in $19,500… you would’ve got about a $900 winner. But remember, you’re using a lot of capital to generate that amount. With the options, they exploded… and you could’ve taken profits for nearly 150% (assuming you were able to pick up those contracts for 50 cents)!

So a measly $1,000 bet would’ve netted you $1,300 ($1.15 - $0.50) X 100 X 20. The whole idea here is that options under a buck provide massive percentage returns and allow you to efficiently profit in any market environment.

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The next time someone says, I made X dollars... … respond to them with, On how much capital and what was your percentage return? That way, you’ll know exactly how they’re performing in relation to the overall market and other traders. It’s quite clear why I love to trade options under a dollar, right? Let’s move onto some real-money Dollar Ace case studies so you understand that this just isn’t theory… and you can actually use it in practice.

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CASE STUDIES — OPTIONS UNDER A BUCK CONSISTENTLY PROVIDE MONSTER RETURNS I know what you’re thinking at this point, Does this all actually work? Of course it does… more importantly, I have skin in the game and put my own money in these options for under a buck. I’m just going to show you what goes through my mind when I’m placing these trades. First, I want to talk to you about why it’s important to write down ANY unusual options activity you see… because you never know which ones could be a grand slam. THE IMPORTANCE OF A WATCHLIST According to Statista, the number of options contracts traded worldwide was 13.13 billion in 2018… and I’m sure that number ballooned this year. That’s right, I said billion. You could probably imagine how many “in-the-know” traders are placing well-informed bets on options under a buck based on non-public information. Now, my options scanner picks up on Wall Street’s mammoths and spits out some specific options contracts to keep an eye on. Since we might get a few trade setups a day… sometimes, it pays to be patient and wait for the dust to settle… but that doesn’t mean I forgot about the trades.

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This is where a watchlist comes into play. Basically, I write down any unusual options activity I see and jot down some notes: Like I said… you never know which ones of these option contracts under a buck will explode. Those Twitter (TWTR) contracts on my watchlist actually turned out to be an explosive trade… and many traders who got into those calls reaped the reward. Sep 3, 9:39 AM wesley mon: @Kyle....Dollar ACE...took the TWTR last week from the watch list 101% Thanks Sep 3, 9:39 AM heidi wil: I took TWTR when you mentioned it in here too. ty kyle Sep 3, 9:41 AM branden rus: @KD 102% on TWTR Sep 3, 9:42 AM mark bem: Kyle thx 40% TWTR calls!!!

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Sep 3, 9:43 AM torrey wel: Out TWTR for 70% Sep 3, 9:43 AM jabir sam: $1300 from TWTR trade Sep 3, 9:44 AM jabir sam: Dollar Ace now FULLY PAID FOR Sep 3, 9:54 AM didier neu: sold 2/3 of TWTR for 100% holding the rest for a move to 45, plus it’s in a squeeze to the long side on the daily Sep 3, 9:57 AM david tho: KD thx for TWTR idea. sold 1/2 for 100% Sep 3, 9:58 AM keith row: 102.39% on 100 contracts of TWTR Ace Idea!! Thx Kyle! Sep 3, 9:58 AM charlie sho: 100% gain on TWTR ! nice...thanks Kyle

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You can only jump into so many of these trades at a time… and we might fumble on the entry, so it’s good to throw them onto a watchlist and plan accordingly. That’s the exact same process I use to spot options contracts under a buck set to explode. Having a watch list is one thing… but actually understanding the thought process behind the trade is another. With that being said, let’s take a look at some case studies. SEVEN-TIMES CALL VOLUME IN EXEL LEADS TO TRIPLE-DIGIT GAINS IN JUST A FEW HOURS Earlier, I mentioned an unusual options activity trade in Exelixis Inc. (EXEL) — in the Why Trade Options For A Buck or Less section... and I want to give you an inside look into the process of what exactly went down with the trade. At the time, for about a week, we saw some call buyers in EXEL… and here’s a note from my watchlist that I sent out to my clients days in advance: An absolute ton of EXEL call options were bought on several strikes about a week ago. Since, shares have really dipped strongly. I’m going to also be watching this one, as I like the opportunity that this bounces back up just based on the chart. Plus, somebody spent a ton of money betting to the upside - maybe they know something is coming. Buyout? Trial news? Not sure, and there is no guarantees, but somebody is putting their money where their mouth is. On an average day (at the time), Exelixis Inc. (EXEL) trades around 6,500 options contracts. That includes all strikes, expirations, calls, and puts. However, my unusual options scanner picked up some heavy… I mean heavy call buying. When the smoke cleared, 43,000 CALLS TRADED.

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That was SEVEN times the average call volume. Now, you don’t have to be an options expert to pick up that something was brewing. You just needed to see the action, which I do. The options action was impressive, to say the least. At 10:47 AM someone blasted these calls: 647 EXEL Oct 22.0 Calls $0.605 Above Ask! Minutes later… these fired off: 929 EXEL Oct 22.0 Calls $0.80 ASKSIDE The buying was literally non-stop, and by 12:58 the options not only doubled in value… but some whale was still buying up calls: 488 EXEL Oct 22.0 Calls $1.25 ASKSIDE There were a total of 25K calls that traded on the October 22 Call line! That type of action is hard to stay under the radar… and it wasn’t too long after... that the options guys on CNBC were talking all about it:

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But by the time the general public was hearing about these EXEL calls, I was already in a position to peel some off for some substantial profits.

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Less than three hours later I sent out this alert:

Here’s Why I Was So Compelled To Jump In: ♦♦ Aggressive call buying throughout the day, nearly each block trade was on the ask side, a sign that the trader was attacking the calls. ♦♦ Multiple call lines were bought (different strike prices and expiration periods). In fact, I decided to buy near-dated options and pay less. ♦♦ Out-of-the-money options were bought. That means someone needs the stock to move… and move fast to profit. My scanner picked up a massive order, about 8,000 calls being swept up at the $22 strike price… and that led to some other activity in the

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$23, $24 and $25 strike prices. Some pretty long shot bets when the stock was trading under $20.

With this specific trade, I didn’t just blindly buy those call options because they were under a buck. Since there are so many different combinations of options contracts, you really get to pick and choose your favorite flavor. For example, those options that were swept up by some Wall Street behemoth were set to expire in about 3 weeks… but if you want to buy yourself some more time, you could go further out. If you purchase the closer-dated options (the ones expiring sooner), it’s a little riskier… but if the trade works, you get a better percentage return. On the other hand, when you buy further-dated (the ones expiring later), it’s a bit safer and the stock could still run up if you own the contracts. Regardless, all we really care about is the direction the stock goes. If the stock makes a move, all those options will most likely gain in value (all else being equal).

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If you look at the EXEL options that I actually purchased (those had about 6 weeks until the expiration date), 7340 calls exchanged hands that day, this signaled to me the stock could catch a pop soon.

Not only that, but the chart was a screaming “buy” too. The day before I purchased those options, the stock bounced off its support level and had an oversold pattern.

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With the unusual options activity and the support level, those calls looked juicy because there was a high probability buyers would step in and push the stock higher.

Here’s what happened with the stock the day I traded it...

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I sold my first half for a whopping 150% return on my money… and the very next day, I closed the rest out for a 117% winner!

I know what you’re wondering, Can I replicate this strategy? Of course… and those who are trading options under a buck have been reaping the rewards…

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This isn’t just a one off trade… and there are trades like this that happen all the time. For example, let’s take a look at another juicy Dollar Ace setup. PERFECT TIMING OR DID SOMEONE KNOW? I detected some unusual options activity in Medtronic (MDT), and that got me interested.

What was unusual about it? Well, on a typical day you’ll see about 11,000 calls trade in MDT. However, that week, one trader came in and bought 5,000 contracts of the October $115 calls. And that was just one single order… there were plenty of others that my Dollar Ace scanner detected too. But I was patient and waited to get in on the options… and by then, the open interest on the $115 calls ballooned to 11,000… which is huge.

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I decided to hop in the Oct. 18, 2019 $115 calls for $0.32… I bought 100 contracts… and it cost me $3200 (commissions not included). Talk about leverage! For 3200 bucks I’m able to leverage upwards of 10,000 shares of MDT. If I were to buy 10,000 shares at its current price it would cost me over one million dollars! HERE’S WHAT ELSE WAS SO APPEALING ABOUT THE MDT TRADE The options that I bought were out-of-the-money. And are considered longshot bets in the eyes of most mathematicians. But you know what? Someone with real money was gobbling the $115 calls right up… and I’m pretty sure the reason they were buying them had nothing to do with math. Now, I’m not implying there was foul play here. But I’m not naive either. No one is laying down that much down on a lotto ticket unless they’ve done due diligence. And you know what? It didn’t take long for those options to explode… On Monday morning it was payday…

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With profits so juicy… coming in so fast… I had to take them. But this story isn’t over. Because, on Monday, the action in MDT calls was heavy. In fact, those $115 calls that I closed out for a profit… Well… they traded 22,000 times yesterday.

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And you know what else? MDT was set to release earnings AFTER those options expired… so whoever is buying up these OCT calls isn’t doing it as an earnings play. Was there another catalyst in the works… one that we didn’t know about? It’s very possible. Those calls were low delta options and had a ton of time decay in them. In other words, if you’re patient with these specific types of options, you’ll get an opportunity to buy them options at a much lower price, that is, if shares of the stock dip a little. The great thing about trading off unusual options activity is that you don’t have to come up with your own trade ideas. You are simply following in the footsteps of what we believe to be informed traders. I know you might be getting tired of me talking about these option terms like delta, and the other nuances… and you probably just want to hear the goods. So from here on out, I’m going to break down these trades so anyone can understand it… even if they’re not well-versed in options.

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OPTIONS WHALE SCOOPS UP CALLS AHEAD OF MASSIVE $16M INSIDER BUYING A lot of the times, we’ll see unusual options activity ahead of a catalyst, which propels the stock higher… or tanks it, depending on which side of the trade you’re on. With Fox Corp. (FOXA), I noticed some bullish options activity go off. I noticed $33 calls being swept up for 25 cents, at the time, an options trader gobbled up about 2,000 of those… and FOXA was a name with a bunch of calls being purchased. The most interesting part of this options trade was the expiration date… those options were so close to expiration, and something smelled fishy. Basically, someone dropped about $50K betting FOXA would trade above $33 before its expiration date (about a week away at the time).

Notice how the second column (the total volume) was 5,138, while the first column (open interest) was 7 that day. This was a signal traders

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were opening a new position in FOXA, and indicated it could spike soon at the time. The stock was trading at $32.31 when I saw the order go off… and since the $33 strike price calls were snatched up, it was a no-brainer to me. It wouldn’t take much for FOXA to get above $33. In addition to the massive options bet, FOXA also had an interesting chart setup.

The stock was pretty beaten down and found some support just under $32 (the blue horizontal line). Additionally, FOXA was coming out of oversold conditions… so that improved my chances of success.

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So I purchased 100 contracts of FOXA and followed in the footsteps of those Wall Street giants. That meant I would control a whopping 10,000 shares for a measly $2,500 bucks. If you were to purchase 10,000 shares of FOXA… that would cost a whopping $323,100 (if you purchased at $32.31 when I saw the options go off). Remember what we said about these trades… it’s not uncommon to see a catalyst come out after. Do I know what the catalyst will be? Heck no… that would be considered illegal, but I’m also not naive… I know there are plenty of traders who are “in the know” about non-public information and act on it.

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What do you think happened the next day? A catalyst. Source: Seeking Alpha

It didn’t take too long for the stock to break above $33…

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You’re probably wondering how much the options returned, right? A monster 120% winner overnight.

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Remember, I bought 100 contracts for $2,500… and realized nearly $3,000 in profits overnight!

Just think if you put just $1,000 in the trade… you could’ve come out with $1,200 in profits. Imagine if you threw down $5,000… that would’ve been $6,000 real dollars in your pocket. Are you starting to get the point of why I love to buy options for under a buck now? If not… there are a few more trade setups I want to talk about. CNBC’S NAJARIAN BROTHERS STRIKE AGAIN You probably saw a trade alert for PDD in my email screen shot...

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The cat’s out of the bag, I traded PDD… but I want to walk you through my process and show you how the trade turned out in those call options under a buck. So I saw some unusual call buying in PDD, thousands of the $34 strike price calls were swept for about 70 cents...

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… the stock was trading about 32 and change, and the strike price of those calls was $34, about a 6% from where it was trading. When I pulled up the Level 2 (the bid and ask), those contracts were very liquid… and it wasn’t hard to get in.

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What do you think happened after I got into those calls? The stock was featured on CNBC.

Did I know the Najarian brothers were going to talk about it? Heck no! All I was focused on was the options activity, as well as the chart.

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PDD was right near it’s all-time high, which is a key resistance level — an area where traders will look to bet against the stock.

However, if there’s the right catalyst… PDD could break above that and skyrocket. So the options activity (and maybe some coverage from CNBC) increased the demand for the stock and pushed it higher… all the way to $33.88 (just under the strike price of the options I purchased).

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Just a few hours I took the trade, I locked in an 80% winner!

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That was good for about $2,600 in profits.

But the “million-dollar question” here is if you could’ve participated in that massive move… … of course, because those who actually took the trade also profited handsomely.

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It’s not uncommon to see unusual call activity ahead of bank comments A lot of the times, these option players are privy to bank comments ahead of time. You see, banks like JP Morgan Chase, Goldman Sachs, Bank or America Merrill Lynch, Opennheimer, Barclays, Citi, Wells Fargo… and so many more Wall Street firms provide coverage on stocks. Basically, they give ratings on a stock… whether it’s a buy, hold or sell… whether the stock will outperform, underperform, or perform just as well as the market or industry… as well as price targets.

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When an analyst comes out and talks about a stock… it could definitely move shares. Let’s walk through the trade… and no, I didn’t have knowledge of this information at all… just that more than 20,000 contracts exchanged hands on the $46 call options that day (outlined by the yellow rectangle below).

There was a slew of call buying in Comcast Corp. (CMCSA), and the thing that really got me interested in the trade was the chart setup.

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CMCSA was in a flag pattern… and I think more importantly, there was no resistance above. Not only that, but there was a key psychological level above at $50. When stocks break out of the middle-range around (around $45 in our case here), it could attract some momentum buyers and gravitate towards $50. I don’t know the psychology behind it… but people like round numbers and they tend to act like magnets. So with this specific trade, I was able to scoop up 100 contracts of the $46 calls for under a buck a piece, 36 cents to be exact!

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Again, not knowing what the catalyst was going to be ahead of time… An analyst came out and turned bullish on CMCSA. Source: Seeking Alpha

The very next day, I sold those options for a colossal 145% win (nearly $5K in profits)!

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I wasn’t the only one profiting off this trade, in fact many traders using my Dollar Ace System also cashed in big!

Heck, there were so many other traders in the Dollar Ace room who took advantage of that alert as well.

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HUNT DOWN $1 OPTION CONTRACTS POISED FOR HUGE GAINS Why do some traders always make money in the stock market? After all, aren’t we all staring at the same charts and reading the same news? Well… … not everyone.

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Do you really believe that we’re on an equal playing field… with hedge funds, banks, corporate insiders, and proprietary trading firms? Me neither. But instead of complaining about it or screaming out “conspiracy theory,” I’ve decided to profit alongside them by using my Dollar Ace strategy. You’ve seen the power of the proprietary options scanner that allows me to detect the footprints of some Wall Street’s sharpest minds and my simple process… … and now it’s time to join in on the action and hunt down $1 option contracts poised for monster gains.

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