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Baidu Inc (ADR) (NASDAQ:BIDU) tagged a new annual high of $149.95 yesterday afternoon, despite the change of course in its options pits. Specifically, 19,000 puts -- a 36% mark-up to the intraday norm -- were exchanged, compared to 21,000 calls.
Taking center stage yesterday was the October 135 put, where almost 3,500 contracts changed hands for a volume-weighted average price (VWAP) of $1.42. The majority of the contracts went off at the ask price, while open interest added roughly 2,800 positions overnight -- collectively pointing to the initiation of fresh long puts.
By purchasing these deep out-of-the-money options, yesterday's put buyers anticipate BIDU will fall back into territory last breached on Sept. 6. Specifically, they expect the stock to drop at least 12.4% to finish south of the breakeven price of $133.58 (strike price less the VWAP) by front-month options expiration on Oct. 18.
Considering BIDU's quest for new highs -- the stock tagged another peak of $152.74 earlier today -- these puts could've been purchased as protection
. By buying the puts to open, the traders lock in an acceptable price ($135, in this case) at which to unload their BIDU shares, should the stock take a turn for the worse. Their primary goal remains for the Chinese search engine to extend its uptrend, though.
Delta for the option currently rests at negative 0.13, or negative 13%, giving it a less than 1-in-7 chance of moving into the money by the expiration date. Should BIDU continue its journey to new highs, rather than plummet below the 135 strike, the most yesterday's put buyers risk losing is the initial premium paid -- which is nothing to lose sleep over. BIDU's Schaeffer's Volatility Index (SVI) of 32% ranks lower than 84% of other such readings taken throughout the year, meaning short-term options are relatively inexpensive right now.
Technically speaking, Baidu Inc (ADR) (NASDAQ:BIDU) has tacked on more than 69% in the past three months -- in part due to an upbeat earnings report in late July -- to its current price of $152.52. From a broader perspective, the stock has advanced 34.6% year-over-year.
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