Ladies and gentlemen, I’ve got some good news and some bad. You see, there are a lot of investors out there that feel that stock market is rigged…and that the little guy has no chance of succeeding. What I’m about to share with you might be disturbing…and possibly strengthen those beliefs.

1. The Truth About
Unusual Options
Trading Activity!

2. Ladies and gentlemen, I’ve got some good
news and some bad. You see, there are a lot of
investors out there that feel that stock market
is rigged…and that the little guy has no chance
of succeeding.
What I’m about to share with you might be
disturbing…and possibly strengthen those
beliefs.

3. However, I encourage to you read all the way
through…you’ll be shocked and delighted you
did.
Now, there are literally tens of millions of
equity options traded daily. The majority of
them are conducted by large institutional
traders.

4. My focus tends to be on option orders that stick
out like a sore thumb…on a good day I can find
five or more …on other days, they are few and far
between.
One of the exciting parts of following unusual
options activity is that you’re eventually bound to
come across something so unbelievable…so
suspicious…that someone should be going to jail
for cheating.

5. Now, I’m not implying that shady went down
here…more like baffled….how did they know?

6. Allergan, Inc. (AGN)
Round 1
On March 11, 2014, the stock was trading around
$129 a share. Within the first half hour of the
trading day, someone came in and bought 1,000
July 140 calls for $5.84…in addition, they sold
1,000 July 115 puts for $3.84. All together this
trade was done for a debit of $2.

7. About an hour later, the trader came
back…but this time they sold 1,000 July $160
calls for $1.92 and bought 1,000 July 105 puts
for $2.17. This was done for a debit of $0.25.
So What Else Do We Know?

8. The July $140 calls bought were against open
interest of 114 contracts. This means that this was
a new or opening position.
The same could be said for the July $115 puts that
were sold (they were against 552 contracts of
open interest.
This is a bullish bet that the stock trades higher

9. The trader is buying some time for their idea
to play out.
At the time AGN on average traded 2,516
option contracts a day…on this date, nearly
8,000 contracts were traded. That’s 300%
increase in options volume.

10. To be honest, although this is unusual options
activity in the name, it’s not that crazy of an
order.
For example, there will be days we might see
10x or greater usual options volume in some
stocks.
However, it’s something worth noting or
putting on a watch list.

11. Fast Forward a Month
Round 2
Technically, AGN is starting to break-down. On
April 8th 2014, the stock was trading at $116
and below its 50 day moving average. What
follows next is really interesting.

12. On April 11, 2014, call buyers were coming out
in full force. This time, it was a little weird
…over 8,000 calls traded vs. 1,000 puts. Again,
this was about 3x usual options volume.
With the stock trading near $121 per share,
there were over 2,300 April $130 calls
traded…most of those were bought on the
offer (the ask side), in fact…95%.

13. These options were initially bought for .30 in the
morning…and with less than 10 minutes to go
until the close….hundreds of them were getting
scooped up for $0.50 and $0.55 (with only six
days till expiration!).
Keep in mind, this was on a Friday…typically, this
type of activity near the close, heading towards
the weekend… indicates that something might be
announced on Monday.

14. Oh yeah, want to hear what else that was
pretty crazy.
Remember, those July $160 calls that were
sold for $1.92 in March…well, it appears that
they were bought back (closing the short).
Over 1,000 of the July $160s were bought for
$0.55.

15. It Gets Better
Round 3
On April 17th, those April $130 calls were
trading above $3.85…as the stock closed at
$133.92. That aggressive call buy from the
previous Friday paid out handsomely. At this
point in time, the stock moved up nearly 15%
on the week.

16. So far, I’ve seen unusual options activity twice
over the last month…and from what it looks
like, these traders seemed to be the “real
deal.”
You see, it’s ok to sit back and gather
information before making a move. A lot of
unusual option trades don’t pan out. That’s
why it’s important to be selective.

17. However, these traders involved with
AGN….have proven to be informed.
On April 21st, 11,506 contracts of AGN were
traded….over 3,000 puts and 8,300 calls traded.
Again, this was 3x usual option volume.

18. One interesting trade that went off in the
morning was a trader bought over 550 May
150 calls for $1.55 and sold over 550 $125
puts for $1.10.
All together was done for a net debit of $0.45.
A $24,750 “bet” that turned into over
$850,000 in less than 24 hours.

19. You see, after the close that day, the stock
popped to $165 per share on news that Bill
Ackman and Valeant were eying a takeover on
AGN.
Great Trade?
Was someone tipped off?
Were they lucky or were they flat out cheating?

20. My answer: It doesn’t matter. I’ll leave that for
the regulators to handle. The truth is…every
option that is traded on the exchange…must
be reported.
Whether they traded off insider information or
not…we have the privilege of seeing their
trades once they are reported. With that said,
we have an opportunity to “legally steal” their
ideas once it becomes public information.

21. Some of you might think that these traders
were crooked. But you have to look at the
bright side of things…these opportunities exist
for us as well.
And that is one of the beauties of following
unusual options activity. You get a front row
seat of what the big boys and girls are doing.

22. They’re Back
Round 4
On May 12, AGN’s board unanimously rejected
Valeant’s proposal. Rumors are circulating that
a larger bid from Valeant or someone else will
soon follow.

23. On May 16, 2014, I noticed a pretty decent sized
trade. One trader came in and bought 1,400
September $170 calls for $5.50 and
simultaneously sold 1,400 September $140 puts
for a credit of $3.50. The trade combined was
done for a net debit of $2.00.
Only time will tell if the trade above will work.
From what I’ve seen thus far, I wouldn’t bet
against them being wrong.

24. Now, if you’d like a more detailed analysis on
what to look out for when unusual option
activity trades are made public.
You should check out our free report. It’s a
step-by-step process that I’ve created… over
the years…that attempts to spot the next big
stock mover…and I think it’s pretty darn good.

25. Have you seen any unusual option orders
lately that have tickled your fancy or have you
found something that you thought was
unusual and ended up being a losing trade?
If so…let me know.
I’ll be hanging out in the comments section
below.