Learn How to
Follow the Smart Money®
The #1 Way We Choose Our Trades—Free!
In Follow the Smart Money®, Jon and Pete Najarian will teach you how they trade unusual option activity every day—step-by-step from identifying the trade, to confirming if it is unusual, to choosing the right options strategy.
“You’ve seen us talk about it on CNBC’s Halftime Report™ & Fast Money™. Now, in our new book, we’re revealing how we use unusual options activity to Follow the Smart Money®!”
–Jon & Pete Najarian
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By clicking “Yes! Send My FREE Book” above, we will send a copy of Follow The Smart Money® to the address provided at no cost to you. Clicking the “Yes! Send My FREE Book” button also means that you agree to receive marketing offers from Market Rebellion, and its affiliates, subsidiaries, or agents in the form of emails, pre-recorded messages, text messages, and autodialed calls at the email address and phone number provided above, even if the phone number is present on a state or national Do Not Call list. You recognize that you are not required to provide this consent as a condition of purchase and that you can withdraw consent at any time. Message and data rates may apply. By clicking “Get My Free Book” you also agree to our Privacy Policy and Terms of Use.
“We have watched Jon and Pete on CNBC for years. It only took a matter of minutes for us to realize and appreciate the true power of Unusual Option Activity.” – Bruce W.
“Almost feels like cheating! Couldn’t imagine working without it ever again.” – Tom B.
“I have learned how much I didn’t know and feel I am now in the right direction to make much more profitable trades!!” – Walter S.
What is smart money?
Smart money is the capital invested by experienced and well-informed traders such as institutional investors, banks, hedge funds, and other large financial entities.
Wall Street’s “elite”
The smart money invests on a much larger scale than retail investors. They manage billions of dollars in assets and have the ability to deploy incredible resources. They can easily afford the best research analysts, most powerful trading software, and access to data that gives them a clear edge.
When these players come to the table to place a trade, they do so with confidence. But since they’re trying to amass such large positions, they do so using both stock and options markets. And it is in these trades that they make waves.
For instance, the $100 billion Japanese fund SoftBank used options to take a large stake in U.S. large-cap tech companies through billions of dollars in option trades in 2020. When someone of that size comes into the market, they tend to create waves.
Read more about SoftBank’s unusual options activity here: Revealed: The Smart Money Behind Tech’s Big Run
But smart money isn’t always the ultra-powerful institutions. Sometimes it can be rogue actors such as company insiders acting on non-public information.
Insider trading
Insider trading is the trading of a company’s stock or other securities based on material, non-public information about the company.
The clearest example is a CEO or CFO who knows about a quarterly earnings report before the market. Using that knowledge—good or bad—they place a trade to buy or sell stock in advance of the market learning the same information. Or they could even tell a friend or family member about the information, which the friend or family member then uses to profit.
To be clear, insider trading is ILLEGAL.
But often enough, the waves these insiders create are visible to those who know where to look. And that’s what we attempt to do when following the smart money into trades.
Trading off the unusual options activity created by insiders is perfectly legal. That’s because when someone places a trade in the options market, the trade is visible to everyone via a public feed. Information such as the number of contracts purchased, the price they paid, and the time in which they placed the trade are all available to us on the options chain.
And when information is public, it’s not “inside” information.
The reason this is perfectly legal is because at the end of the day, following unusual options activity is taking risk. You might be able to apply public information better than others, but you don’t know anything that others don’t. And you don’t have the obligation to keep any of that information secret.
Curious how Market Rebellion uses unusual order flow to tilt the odds in our favor and follow those who may have better information than we do? Learn more here: Is There a Legal Way to Trade on Inside Information?
How to follow the smart money®
The hunt for the smart money begins with uncovering the footprints they leave behind on the options chain. There are several tells that you’ll want to be aware of when trying to identify unusual options activity.
Here are a few basic tells for identifying smart money moves:
Oversized trades on a short time frame
First, you’ll need to identify unusual activity that is relatively large in size with an expiration date that is on a short time frame. An inside trade doesn’t need to buy extra time; they know precisely when then the stock is expected to move. So, their trades will typically be short-term in duration and large in size.
Also, take note of large trades that occur on strikes with little to no open interest (contracts held from prior trading sessions). The smart money doesn’t concern themselves with average contract volume or open interest to mask their order. Their goal is to get in fast at the most opportune moment.
Opening orders not tied to a stock purchase
There are legitimate reasons large orders may come across the tape. For instance, some institutions may need to hedge an order of stock in the options market. Or a hedge fund may be building a position in a company and use options as a way to do that.
To find the smart money, you must filter out all the noise. That means limiting your search to opening orders that are not tied to a stock purchase or sale. The smart money places new orders and doesn’t bother to hedge them with stock.
Out-of-the-money calls or puts with astronomical odds
Options account for the current price of the stock, its volatility, the time to expiration, interest rates, dividends, and the strike price. In normal circumstances, these are fairly priced — meaning that they accurately reflect all known knowledge. So, in theory, there shouldn’t be an edge to them.
However, the smart money has knowledge not reflected in the price. They’re oftentimes willing to pay prices that others may not be willing to pay. If someone is buying short-term out-of-the-money options and paying the offer for them in large size, it suggests the market’s pricing of them is wrong.
Learn more about how to uncover smart money moves. Check out Three Keys to Identifying Unusual Option Activity.
How we Follow the Smart Money®: Heat Seeker®
At Market Rebellion, Jon and Pete Najarian go way beyond the basics of tracking the smart money. They use their proprietary Heat Seeker® algorithm to help them analyze all the options order flow, filter it for what may be unusual options activity, and further scrutinize it. That allows them to determine if it’s truly a trade worth following or just an unusually large order.
If Heat Seeker® identifies a particular trade that meets their parameters as being truly unusual, and its technical and fundamental analysis checks out — they’ll pounce.
The patented algorithm captures every single options trade placed in the market. That’s 180,000 trades per second. All in an effort to filter through the fog and determine if someone is trading with knowledge the rest of us lack. It collects all the order flow data in real time and tries to identify compelling activity ahead of what might be market-moving events.
To put it simply, the system helps uncover extraordinary buying patterns that can tip them off before a stock moves. It’s some pretty amazing stuff that gives the Market Rebellion trading community an edge when following the smart money.
Find out more about Heat Seeker and how we help our members trade unusual options activity by reading How We Trade Unusual Options Activity.
How to trade smart money moves
So, you believe you’ve identified unusual options activity driven by a smart money trade. The next step is to build a trading plan and jump in with a trade of your own.
The main idea behind unusual options activity is simple on its face: find unusually large options trades and then follow them. But in reality, trading unusual activity is harder than it looks.
Jon and Pete Najarian have spent decades following the smart money. From the floor of the CBOE to today’s fully electronic market — they’ve had plenty of time to refine their techniques.
It turns out, there’s much more to trading unusual options activity than simply finding and copying a trade you believe to be smart money. That’s why Jon and Pete have created a process for trading unusual options activity known as the F.R.A.M.E. method.
Let’s break down their F.R.A.M.E. method and questions you should consider when trading.
By following this strict process and remaining disciplined with their trades, Jon, Pete, and the rest of the Market Rebellion team of traders increase their chance for success.
Discover more about how you can effectively Follow the Smart Money® and trade unusual options activity. Check out our Insider’s Guide to Trading Unusual Options Activity.
Filter to find potential trades
- Was the trade larger than average orders?
- Was it short-term and large in terms of dollars?
Research viability of potential trades
- Are earnings expected to be announced soon?
- Are there pending court cases, FDA announcements, or other news that could explain the trade?
Analyze option markets to find the best strategy
- Was the trade executed on the offer?
- Was it greater than the open interest?
- Was it tied to a spread?
- Was the trade tied to stock?
- How far away is the strike from the current price?
- What’s the implied volatility?
Make/ manage the trade
- Should your trade be hedged with a spread?
- Should you roll your position to reduce risk?
- Should you collect premium (short options) against your long position?
Exit the trade
- Should you hold overnight?
- Is the risk-reward unbalanced?
- Should you trim or sell the full position?
Smart money options trading strategies
So, you know a little more about the smart money, how they trade, and how to F.R.A.M.E. your own trades around the UOA they leave behind. Now it’s time to introduce you to specific options trading strategies you can use to capitalize on the action. At Market Rebellion, we use several options strategies when setting up on a trade.
Here are some of the powerful strategies that we employ when trading smart money moves:
Long calls and puts
The easiest and most obvious way to Follow the Smart Money® is to simply buy calls or puts in the same direction as the unusual options activity. This could mean a straight mimic of the UOA, or slightly adjusted for price and/ or time. If you believe the smart money is on to something, you could go long calls for a bullish case or puts for a bearish case.
Vertical bull call spread
A bull call spread is another way to go long UOA associated with the smart money while also mitigating your exposure to volatility. It means purchasing a long call with a lower strike while simultaneously shorting a call with a higher strike of the same expiration. This trade results in a net debit and increases in value as the underlying stock price rises. Max gain is the difference between the long and short call.
Long calls and puts
The easiest and most obvious way to follow the smart money is to simply buy calls or puts in the same direction as the unusual options activity. This could mean a straight mimic of the UOA, or slightly adjusted for price and/ or time. If you believe the smart money is on to something, you could go long calls for a bullish case or puts for a bearish case.
Vertical bull call spread
A bull call spread is another way to go long UOA associated with the smart money while also mitigating your exposure to volatility. It means purchasing a long call with a lower strike while simultaneously shorting a call with a higher strike of the same expiration. This trade results in a net debit and increases in value as the underlying stock price rises. Max gain is the difference between the long and short call.
Long calls and puts
The easiest and most obvious way to follow the smart money is to simply buy calls or puts in the same direction as the unusual options activity. This could mean a straight mimic of the UOA, or slightly adjusted for price and/ or time. If you believe the smart money is on to something, you could go long calls for a bullish case or puts for a bearish case.
Vertical bull call spread
A bull call spread is another way to go long UOA associated with the smart money while also mitigating your exposure to volatility. It means purchasing a long call with a lower strike while simultaneously shorting a call with a higher strike of the same expiration. This trade results in a net debit and increases in value as the underlying stock price rises. Max gain is the difference between the long and short call.
Long calls and puts
The easiest and most obvious way to follow the smart money is to simply buy calls or puts in the same direction as the unusual options activity. This could mean a straight mimic of the UOA, or slightly adjusted for price and/ or time. If you believe the smart money is on to something, you could go long calls for a bullish case or puts for a bearish case.
Vertical bull call spread
A bull call spread is another way to go long UOA associated with the smart money while also mitigating your exposure to volatility. It means purchasing a long call with a lower strike while simultaneously shorting a call with a higher strike of the same expiration. This trade results in a net debit and increases in value as the underlying stock price rises. Max gain is the difference between the long and short call.
Vertical bear put spread
A bear put spread is the exact opposite of a bull call spread and occurs on the put side of the options chain. It consists of one long put at a higher strike and one short put at a lower strike with the same expiration. This trade also results in a net debit and increases in value as the underlying stock price declines. Like the bull call spread, max gain is the difference between strikes.
Long straddle
Expecting a BIG move in either direction? If the smart money is loading up on both sides of the options chain, the long straddle might be the best play. It involves buying a call and put at the same strike price and expiration. These are typically initiated at-the-money and produce a profit if the stock makes a big move either up or down.
Vertical bear put spread
A bear put spread is the exact opposite of a bull call spread and occurs on the put side of the options chain. It consists of one long put at a higher strike and one short put at a lower strike with the same expiration. This trade also results in a net debit and increases in value as the underlying stock price declines. Like the bull call spread, max gain is the difference between strikes.
Long straddle
Expecting a BIG move in either direction? If the smart money is loading up on both sides of the options chain, the long straddle might be the best play. It involves buying a call and put at the same strike price and expiration. These are typically initiated at-the-money and produce a profit if the stock makes a big move either up or down.
Vertical bear put spread
A bear put spread is the exact opposite of a bull call spread and occurs on the put side of the options chain. It consists of one long put at a higher strike and one short put at a lower strike with the same expiration. This trade also results in a net debit and increases in value as the underlying stock price declines. Like the bull call spread, max gain is the difference between strikes.
Long straddle
Expecting a BIG move in either direction? If the smart money is loading up on both sides of the options chain, the long straddle might be the best play. It involves buying a call and put at the same strike price and expiration. These are typically initiated at-the-money and produce a profit if the stock makes a big move either up or down.
Vertical bear put spread
A bear put spread is the exact opposite of a bull call spread and occurs on the put side of the options chain. It consists of one long put at a higher strike and one short put at a lower strike with the same expiration. This trade also results in a net debit and increases in value as the underlying stock price declines. Like the bull call spread, max gain is the difference between strikes.
Long straddle
Expecting a BIG move in either direction? If the smart money is loading up on both sides of the options chain, the long straddle might be the best play. It involves buying a call and put at the same strike price and expiration. These are typically initiated at-the-money and produce a profit if the stock makes a big move either up or down.
Trade management
Understanding some of the key options strategies will only take you so far. As we discussed when reviewing Jon and Pete’s F.R.A.M.E. method, you’ll need to properly manage your trade to truly find success.
Here are some of the most critical elements to managing a trade based on smart money moves:
Entry triggers
Triggers are important technical levels based on support and resistance areas or a recent high or low price. Sometimes it’s best to wait until the underlying stock breaks above or below these levels before jumping into a trade based on smart money UOA. If the stock moves beyond your predetermined trigger level, you’ll be able to initiate a trade of your own with more conviction.
Profit targets
Profit targets are exactly what you’d expect. They’re levels at which to consider closing or adjusting a trade in order to take profits off the table and decrease exposure.
Rolling
In options trading, rolling means closing a position and re-opening a new one to adjust for either price or time. You can roll out to a later expiration date to add more time to your trade. Or, a technique we teach more frequently at Market Rebellion, you can roll to a higher/ lower strike price to take profits and reduce your downside risk.
An example of rolling strikes would be to sell a current long call and buy a new long call with a higher strike price.
Stops
Stop orders are triggered when a stock moves above or below a specific price. At Market Rebellion, we typically do NOT place hard stops on options trades based on smart money moves. That’s because options are highly volatile instruments influenced by volatility and time — not just the price of the underlying stock. That means stop orders (which become market orders) can be triggered inadvertently in options.
Instead, we usually recommend cutting losses on a particular trade once the options value falls to 50% of the purchase price.
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By clicking “Yes! Send My FREE Book” above, we will send a copy of Follow The Smart Money® to the address provided at no cost to you. Clicking the “Yes! Send My FREE Book” button also means that you agree to receive marketing offers from Market Rebellion, and its affiliates, subsidiaries, or agents in the form of emails, pre-recorded messages, text messages, and autodialed calls at the email address and phone number provided above, even if the phone number is present on a state or national Do Not Call list. You recognize that you are not required to provide this consent as a condition of purchase and that you can withdraw consent at any time. Message and data rates may apply. By clicking “Get My Free Book” you also agree to our Privacy Policy and Terms of Use.
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Get hands-on guidance and trade ideas straight from our experts. Visit marketrebellion.com/subscriptions to learn more. Or give us a call at (888) 850-2023 and let one of our trading specialists recommend a program to help you achieve your goals.