This “Dirty Bird” Trader Couldn’t Steal Our Gains
Having been a floor trader on the Philadelphia Stock Exchange for many years, I saw lots of “dirty birds.”
I mean that both figuratively and literally. The pigeons in Philadelphia are gross!
But I’m mostly talking about some of the filthy dirty bird traders I had to work alongside of.
Everyone is always looking for an edge in their trading. That’s understandable.
But some traders will cross the line to get their information. Insider trading is illegal. It also leaves a really bad taste in your mouth when you see it. It’s a dirty edge.
You’ve all seen the movie Wall Street. If you haven’t seen it, c’mon, it’s a classic.
Let me tell you, there are many Gordon Geckos out there.
So, ready for a little drama? I have a real-life Gordon Gecko to expose for you.
On August 23rd, I emailed the subscribers of one of my premium services with details about a highly unusual, very aggressive bullish trade detected in the options market.
When I see one of these odd option trades, I analyze it. And if I think there is a good trade opportunity, I send these emails called "Market Shadows Profit Alerts."
These are exclusive "Costas picks.”
Here, you can see the same alert that I saw.
(Click any image to enlarge.)
Let me translate that for you. You see the ticker symbol TRQ in the image above? That’s Turquoise Hill Resources Ltd. (TRQ), a copper miner.
Now, you see the “5000” before TRQ? Okay, keep reading along that line. It says that someone bought 5,000 TRQ October 27 Calls for $1.20 when TRQ was trading around $22.68 per share.
$1.20 for one option is $120 for one option contract. (Each contract controls 100 shares of the underlying stock.) And 5,000 option contracts for $120 per makes a total of $600,000 worth of these options that control 500,000 equivalent shares. That’s a lot!
That’s an unusually large volume of options even for the biggest institutional investors. And when you first look at the chart, there was no real good reason even to take a small position in TRQ because the stock was in a downtrend.
In March, TRQ gapped up hard, as you can see in the above chart. There was some obvious support around $21.50 when TRQ filled the gap. But selling volume had been increasing going into August 23rd and there was a real possibility that it could fall even further.
There is simply nothing here to justify that big of a bet on a TRQ rally.
But then something remarkable happened…
On August 24th, the day after my scanner spotted this unusually large order for October TRQ 27 Calls, news broke that Rio Tinto Group—a huge mining company—had increased its bid to buy out TRQ to $3.1 billion. That was an 18% jump from their previous offer.
(You can read the article yourself. Note the date it was published.)
So, some dirty bird trader places a BIG BET on cheap, out-of-the-money Call options… and just ONE day later, the gamble just happens to PAY OFF big time for whoever this Gordon Gecko wannabe is.
TRQ went from trading a low of $21.72 on August 23rd, to a high of $29.32 on August 24th. TRQ was up +25.43% on August 24th!
And look at what happened to the option.
The option that this dirty bird bought for $1.20 closed out the next day at $3.50. That’s a 192% gain in a single day.
On 5,000 options, that’s a total gain of $1.15 million. In a single day!
Like I said… dirty birds leave a bad taste in your mouth.
But there’s a silver lining.
The trade also paid off big time for my Dark Money Indicator subscribers who participated right alongside this large trader. All because this scanner hunts for the Gordon Gecko’s of the market.
What this trader allegedly did is likely highly illegal – acting to profit on non-public, material information. It reeks of dirty edge.
But there is nothing illegal about looking for public information that anyone can access to gain an edge in your trading.
In other words, it's perfectly LEGAL to "surveil" the options markets looking for unusual option activity and trade off of that public information. And that's exactly why DMI traders enjoy the opportunity to make huge, perfectly legal profits.
My subscribers were able to grab a 192% winner in 24 hours.
So, there is a little drama for you and some trading education to go with it.
All in all - a happy ending.
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