Option players have displayed a growing demand for Qihoo 360 Technology Co Ltd
(NYSE:QIHU) calls of late, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 10-day call/put volume ratio (which measures buy-to-open activity) is docked at 4.68, compared to its 50-day call/put volume ratio of 1.07. Plus, this shorter-term ratio ranks higher than 90% of other such readings taken in the past year, indicating calls have been scooped up over puts at a near annual-high pace in recent weeks.
Further highlighting this developing trend is the stock's falling Schaeffer's put/call open interest ratio (SOIR). Since November 19, QIHU's SOIR has dropped to 1.09 from 1.18, as near-term call open interest has jumped 30.5%. This ratio now ranks in the 21st percentile of its annual range, implying that short-term speculators are more call-heavy than usual toward the equity.
Option traders are all for QIHU calls in today's session. More than 14,000 contracts have crossed the tape at last check, representing nearly 11 times the average daily call volume. Meanwhile, fewer than 3,100 puts have changed hands. Near-term traders have their eye on QIHU's December 27-strike call, which has seen almost 1,200 contracts trade. The majority have crossed at the ask price, implied volatility is 13.4 percentage points higher, and volume is outstripping open interest, making it safe to assume that some of today's activity is of the buy-to-open variety.
By purchasing these near-the-money calls to open for a volume-weighted average price (VWAP) of $0.85, traders expect QIHU to finish above the $27.85 mark (the strike plus the average premium paid) by December expiration. This breakeven level is a slight 1% improvement over the equity's current perch.
There are a couple of things that may have sparked this recent run on long calls. For starters, the equity's Schaeffer's Volatility Index (SVI) of 37% is ranked in the lowest percentile of its annual range. More specifically, implied volatility (IV) at the December 27-strike call is currently deflated compared to its 20-day historical (realized) volatility. In other words, QIHU's near-term options are priced relatively cheaply at the moment, making buying premium an attractive strategy.
Additionally, QIHU has been on a technical tear in 2012. In addition to outperforming the broader S&P 500 Index
(INDEXSP:.INX) by nearly 15 percentage points over the past 20 sessions, the stock has added more than 75% on a year-to-date basis. In fact, the stock has shot 35.7% higher since Oct. 26, after sector peer Baidu's
(NASDAQ:BIDU) quarterly earnings revealed QIHU as a formidable foe to the former's bottom line. Conversely, BIDU has dropped 14.5% during that same time frame. What's more, QIHU tagged a new annual high of $28.16 just before noon today.
At last check, QIHU had pared some of these earlier gains, but was still up more than 10.5% on no apparent news, hovering just shy of the aforementioned breakeven mark.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.