In early November, I wrote a blog post discussing four reasons for a year-end rally. They included: 1) The big institutions were coming back into the market because the Fed signaled they are done raising interest rates. 2) Sentiment. Most people are bearish and underinvested. 3) Seasonality. November and December are historically two of the strongest months. 4) Technicals. Two O’Neil follow through days, a Zweig Breath Thrust, and the major indexes regaining their 50-day moving averages.
Now, the bulls have something else on their side that could signal continued strength into early next year: Massive options activity. I follow unusual options activity via OptionsHawk. Over the past two days, there were huge trades in four of the largest Mega Cap stocks that could bode well for more strength into February.
1) 11/15/23 Nvidia (NVDA) buyer 35,000 February $460 calls $65.65 as Jan. 380 adjust. A $230M trade.
2) 11/15/23 Amazon (AMZN) massive buy 148,700 February $135 calls $15.20 as 117K of the $115 adjust up. A $226M trade.
3) 11/15/23 Meta (META) with 35,000 February $300 calls bought $47.04 as the $250 calls adjust.
4) 11/16/23 Microsoft (MSFT) buyer of 31,500 February $350 calls at $36.12 in a $122M position adjusting the $300 strike.
I use unusual options activity to give me added conviction in the markets. I also do my best to interpret what the big institutions are doing because they control the market. These trades are clearly large institutions sticking with the trend in these Mega Cap stocks. One comment from OptionsHawk: “I would note massive trades taking profits and adjusting out in time tends to signal a view there likely is a near term pullback as they maximize value of the more theta-exposed trades while taking a view that over the next 3+ months new highs are likely.” Does it mean all these trades have to work? Of course not. But I’m certainly not betting against them.
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