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downloading your reports., Inc. Sees a Rare Surge in Call Volume


Near-term optimism emerges on BIDU.

Options players were bullishly biased toward China-based, Inc. (NASDAQ:BIDU) on Friday, as roughly 16,000 calls crossed the tape during the course of the session, compared to just 11,000 puts. A closer look at the data shows that some of these optimistic traders are counting on the stock to retake the $100 level -- which has largely eluded the stock since early February -- within the next couple of weeks.

Specifically, 1,473 calls changed hands at the July 100 strike -- the majority of them at the ask price, suggesting they were bought. These out-of-the-money contracts traded at a volume-weighted average price (VWAP) of $0.25. Meanwhile, this strike saw a rise in open interest over the weekend, confirming the initiation of new bullish bets.

In order for traders to profit from their bought-to-open calls, BIDU must power north of $100.25 (strike price plus the VWAP) by the close on July 19, when front-month options expire. This denotes an increase of 9.3% from the stock's present perch at $91.68, as well as territory conquered just three times on a daily closing basis since February 4. Still, should the equity fail to conquer the $100 mark within the options' lifetime, the most Friday's call buyers stand to lose is the initial premium paid.

Also of note: The delta for these calls is currently docked at 0.087, indicating they have a less than 1-in-10 chance of finishing in the money. However, speculators can rest easy knowing BIDU's front-month options are relatively cheap right now. In fact, the stock's Schaeffer's Volatility Index (SVI) of 32% ranks lower than all but 15% of similar readings taken within the past year.

This rise in near-term call volume marks a change of pace for the search engine giant. Schaeffer's put/call open interest ratio (SOIR) for BIDU checks in at 1.17, indicating puts outstrip calls among options due to expire in the next three months. This ratio registers in the 87th percentile of its annual range, signaling short-term traders have been more put-focused toward the security just 13% of the time during the last 52 weeks.

Given the stock's technical struggles, this overall pessimism toward is understandable. The equity has shed more than 8% year-to-date, and north of 20% over the past year. Adding insult to injury, the security has also lagged the broader S&P 500 (INDEXSP:.INX) by around 10 percentage points within the last month.

This article by Terri Stridsberg was originally published on Schaeffer's Investment Research.

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