Over 3,000 KHC Calls purchased before today’s Fed Announcement

I trade Unusual Options Activity (abnormal volume in calls or puts) because more often than not, these trades result in a stock making a major move.

Today we saw a trader buy over 3,000 KHC January 47.5 Calls for $1.35 debit. This order cost over a $350,000. Each contract entitles the option buyer/owner to buy 100 shares of the underlying stock upon expiration. KHC has an ADV (Average Daily Volume) of 5,560,000 shares.

I hypothesize that this trade could be a hedge against a short stock position because after looking at the chart, I see that the stock continues to make lower lows and lower highs on the daily chart.

However, we never know for sure if a trader is buying Calls for Speculation to the downside or a hedge against a short stock position. Which is why when I decided I wanted to enter this trade, I did so using a Calendar Spread, in order to lower my cost basis.

I bought the January-December 47.5 Call Calendar Spread for $1.05 debit. This means I bought the January 47.5 Calls and Sold the December 47.5 Calls, hoping the stock does not move much in the next couple of days.

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Andrew Keene

About the Author: Andrew Keene

Andrew Keene is President & CEO of AlphaShark Trading, which he originally founded as KeeneOnTheMarket.com in 2011. Andrew currently actively trades futures, equity options currency pairs, and commodities. He is a regular guest market commentator on such networks as Bloomberg TV, CNBC, and Fox Business. Keene's first love will always be trading, but he is arguably even more well known for building a trading room. Andrew is especially proud of having taught his personal strategies to over 50,000 students over the past 4 years. He is a self-made millionaire from trading and wants to continue to teach and help others.