More than 4,105 contracts traded on the $9.50 strike price calls and the open interest was 88.
Those calls were a new position because the volume was greater than the open interest. When open interest is the same as the volume it becomes muddy. For example, the trader could be closing the position or simply adding to one.
Step 3: Try to put the pieces of the puzzle together. There are thousands of options block trades done every single day. But according to Kyle, you can filter most of them out.
For example, if someone is buying calls ahead of an earnings event, they could be using options instead of stock because it's less risky. This means they could be placing the trade to be risk-averse and not necessarily bullish on the stock.
So instead, Kyle says it's better to jump into trades where the catalyst is unknown.
For example, the "insider" trade in LL didn't have an upcoming catalyst. In fact, those options were set to expire in just about 2 weeks. So whatever the catalyst is, the smart money was betting that the move would happen pretty quick.
Step 4: Conduct your due diligence.
All Kyle has to really do is look at order flow and chart patterns. However, his clients don't have to do that because Kyle does all the heavy lifting for them. Kyle detects these massive options orders, comes up with a watchlist and sends it out to his clients.
Here's how it works in real time.
Kyle spotted a massive options order go off recently in Lumber Liquidators (LL).
Someone bought 2,409 $9.50 DEC 20 2019 calls in LL for a measly 30 cents a pop (remember, the open interest was just 88). Something was up.
However, Kyle doesn't blindly follow these trades. He actually conducts his due diligence and looks for a bullish chart pattern.
Check out the daily chart in LL.
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