 | *Together With Option Pit |
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Everyone wants to know what the big players do with their money. Hedge funds, banks, market makers. The so-called "smart money" crowd with deep pockets and insider resources. |
We watch their moves like hawks because where they go, the market often follows. |
But here's something most people don't realize: these massive players make terrible trades every single day. |
And I'm not talking about a few thousand dollars here and there. I'm talking about $20 million worth of mistakes, daily. |
Let me explain. |
For years, retail traders like us operated under one simple assumption: if you've got billions to play with, you must know what you're doing. |
Banks have armies of analysts. Hedge funds employ PhDs in mathematics. Market makers see order flow that we can only dream about. |
So they must be making perfect trades, right? |
Wrong. |
After spending years on the CBOE floor as a market maker, I can tell you firsthand: big institutions make forced trades all the time. Trades they don't want to make. Trades that lose money the moment they execute. |
And here's the kicker: you can see these mistakes happening in real time, if you know where to look. |
Why the Smart Money Bleeds |
Back on the floor, we used to watch this play out every single day. A big fund needs to hedge a massive position. They don't have a choice. They have to buy or sell options at whatever price the market gives them. |
That's not smart trading. That's forced trading. |
When a pension fund needs to rebalance, they don't wait for the perfect entry. When an ETF gets inflows, they buy regardless of price. When a hedge fund hits a risk limit, they sell whether it makes sense or not. |
These aren't strategic decisions. They're mechanical ones. |
And mechanical decisions create predictable patterns. |
How to Spot These Mistakes |
After decades of watching order flow, I developed a simple system to spot these forced trades and position myself on the other side. |
Step one: Watch for unusual volume in options that doesn't match the stock's price movement. |
Step two: Check if the trades hit on the bid or the offer. That tells you direction. |
Step three: Look at open interest the next day. Did those contracts stick, or did someone close them out? |
Step four: Follow the winners. When a trade works out and the same player rolls into a new position, they're telling you they still believe in the thesis. |
This isn't complicated. It's pattern recognition. The same patterns I learned reading order flow in the pit, now applied to screens. |
You don't need a Bloomberg terminal. You don't need a PhD. You don't need millions of dollars. |
You need to understand that the "smart money" isn't always smart. They're often just big. And big means visible. |
When institutions make forced trades, they leave fingerprints. My job is teaching you how to read those fingerprints and profit from them. |
The big players will keep making $20 million in daily mistakes. The only question is whether you're positioned to benefit. |
Your only option, |
Mark Sebastian |
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