[Options] Taking Advantage of Options Flow

Sean McLaughlin
June 16, 2021

We're going to start taking full advantage of the data coming out of our weekly Follow the Flow report and put on at least one actionable trade from this list every week. If you're not already familiar with this report, Steve Strazza puts it together each week and it highlights stocks with both unusual options flow plus interesting chart setups. Combined, these two factors offer traders a pretty unique edge to exploit.

Today's idea is in a recent IPO which might offer us some additional oomph if it gets moving in our direction.

Check out this setup in SoFi Technologies $SOFI:

I'm loving the consolidation just below IPO highs, as well as the rising relative strength. If the bull market in stocks continues, we can expect $SOFI to continue to be a leader in the next leg up.

Options volatility in this name is somewhat elevated, so we're going to make a directional bet with an options spread to both lower our cost of participation as well as increase our odds of profitable success.

Here's the Play:

I'm buying a $SOFI October 20/30 Bull Call Spread for approximately $2.40. This means I'll be long the 20 calls and short an equal amount of 30 calls for a net debit which represents the most I can lose in a worst-case scenario.

During my hold, if $SOFI breaks and closes below $19 per share, that will be my signal to close the trade at the open of the next trading day. (Never any rush to exit a trade with defined risk if we size our position appropriately from the start!).

On the upside, if $SOFI makes a run at the ASC price target north of $28, then I expect we'll have plenty of opportunities to book a profit in this spread. I'll be looking to close this spread for a $6.20 credit if I can get it. This would represent capturing at least 50% of the maximum possible gain in this spread, and a more than doubling of my invested capital.

This is a best practice that I'm consistent with. I have no interest in holding this spread all the way into October expiration trying to squeeze out a few extra dimes while risking giving back all of my open profit. Let somebody else sweat it out.

If you have any questions on this trade, please send them here.

~ @chicagosean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free!

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