Investing Blog

The big money is good, really good, at predicting when the markets are soon to move. For the past year I’ve been watching the option volume of the big boys and many of them have proven to be extremely profitable. Recently, $1.2 billion of stock was protected to the downside with put options. Needless to say, the markets tumbled soon after.

Trading Volume

Reuters reported on intense trading volume on five exchange-traded funds. The option volume pointed to an extremely bearish future, with the options priced nearly 20% out of the money. In total, $1.2 billion was protected, with a total cost of just $6 million. You can read about it here: http://www.reuters.com/article/idUSTRE60L4WA20100122

Excellent Timing

The big money couldn’t have been better at timing the correction. As you can see in the chart below, the market tumbled after such huge positions were taken. The options have don’t expire until mid-March, suggesting that we still have some room to fall in the next 40 or so trading days.

Watch the Big Money

From now on I’ll be sure to keep a closer eye on what big institutional investors are doing with their money. I can remember several instances, including this one, where seemingly out of the blue purchases correctly timed and forecasted market trends. Just last fall, I watched as an institutional investor pocketed billions on a housing statistic with one ETF rallying more than 20% in under one month. The options, of course, were up several times that.

Investing