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China-based Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is on the bullish radar this morning, as roughly 14,000 calls changed hands within the first hour of trading -- more than double the norm. By contrast, fewer than 6,900 puts have crossed the tape. Upon closer examination of the data, it looks as though a number of speculators are betting on the stock to trek higher by week's end.
Most active is the weekly 5/24 100-strike call, where more than 2,600 contracts have been exchanged at a volume-weighted average price (VWAP) of $0.62. The majority of these calls traded at the ask price, and implied volatility has surged by nearly 12 percentage points since the opening bell -- indications of buy-to-open activity. In other words, these call players are expecting BIDU to rise north of $100.62 (strike price plus the VWAP) by this Friday's close, when these weekly options expire. This reflects an increase of about 3.9% over the stock's current price of $96.87.
Also garnering notable attention today is the weekly 5/24 97.50-strike call, which has seen close to 2,400 contracts change hands -- a healthy portion of them at the ask price, suggesting they were bought. Meanwhile, this strike holds open interest of just 1,480 contracts, signaling the initiation of new positions. In this scenario, traders will profit if BIDU ascends past breakeven at $98.86 (strike price plus the VWAP of $1.36) within the same timeframe.
This bevy of optimism toward the Chinese search engine is simply business as usual. In fact, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 254 calls for every 100 puts during the past two weeks. This 10-day call/put volume ratio of 2.54 is just 3 percentage points from a yearly acme, confirming speculators have rarely snapped up calls over puts at a faster clip during the last 12 months. However, an unwinding of these bullish bets could end up pushing the shares lower, from a contrarian perspective.
This confidence in Baidu.com, Inc. (ADR) is rather puzzling, given the fact that the stock is hovering around 3.4% below breakeven in 2013, and has shed more than 16% on a year-over-year basis. What's more, the shares are on pace to close yet another month below their 10-month moving average, which has served as resistance for more than a year.