Schaeffer's Trading Floor Blog

Will a Post-Earnings Pop Spook Kandi Technologies Group Inc (KNDI) Bears?

KNDI is no stranger to option bears and short sellers

by 5/12/2014 2:56 PM
Stocks quoted in this article:

Kandi Technologies Group Inc (NASDAQ:KNDI) has popped by more than 17% this afternoon to hover at $13.40, following this morning's first-quarter earnings report. However, in the options pits, bearish betting has been in vogue in recent weeks. Specifically, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the electric automaker's 10-day put/call volume ratio is 1.96, with puts bought to open nearly doubling calls. What's more, this ratio sits just 2 percentage points from a 12-month peak, signaling a faster-than-usual clip of put buying (relative to call buying) lately.

In a similar vein, KNDI's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.48. Although this means call open interest more than doubles put open interest among options with a shelf-life of three months or less, the SOIR ranks higher than 83% of similar readings from the past year. In other words, the bias toward short-term puts (relative to calls) has been pronounced in recent weeks.

Digging deeper, peak back-month put open interest on KNDI is located at the deep out-of-the-money June 10 strike, with over 4,400 contracts in residence. The majority of this volume has been bought to open during the last few weeks, as traders are either bracing for -- or possibly protecting against -- a potential slide in the shares

Lastly on the sentiment front, more than one-fifth of Kandi Technologies' float is sold short. At the stock's average daily volume, it would take roughly three sessions to cover these bearish bets.

Shifting to the technical picture, it's not entirely surprising that traders have been gambling on continued downside in the shares. KNDI has pulled back rather dramatically since hitting a record high of $22.40 in mid-March (although it's still more than tripled on a year-over-year basis). However, the equity's slide was largely contained by its rising 32-week moving average, which has functioned as a layer of support since mid-April. If today's earnings-induced rally is a sign that the shares are starting to regain their upward momentum, it could prompt an exodus among the option bears and/or covering activity among short sellers -- either of which could further buoy KNDI.

As stated above, Kandi Technologies Group Inc (NASDAQ:KNDI) had a successful turn in the earnings confessional this morning. The major highlight was the automaker's 174% year-over-year revenue growth. According to Chairman and CEO Xiaoming Hu, "Kandi has once again experienced the significant growth in [electric vehicle] related business sales. We are satisfied with the financial results we have achieved in the slowest quarter of the year."


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