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Baidu Inc (ADR) (BIDU): What's Driving Today's Put Buying?

The January 2014 145-strike put is BIDU's most active option

by 12/18/2013 3:05 PM
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Option Brief: Overall volume in Baidu Inc's (ADR) (NASDAQ:BIDU) options pits today is roughly in line with the typical intraday pace. Nevertheless, puts have traded at two times their typical clip, with roughly 18,000 on the tape so far.

Most active is BIDU's January 2014 145-strike put, which has seen north of 10,000 contracts change hands. The majority have crossed off the ask price, suggesting they were purchased. Meanwhile, volume exceeds current open interest levels, and implied volatility is 5.6 percentage points higher, indicating newly created positions -- a theory that data from the International Securities Exchange (ISE) confirms.

By purchasing the deep out-of-the-money puts to open, today's traders are looking for BIDU to tumble below $145 from their current perch at $168.53 -- a loss of 14% -- by January 2014 options expiration. If the shares refuse to comply, the most the speculators can lose is 100% of the initial premium paid.

It's possible, however, that the put buyers aren't actually bearish at all. Given the Chinese Internet company's year-to-date gain of roughly 68%, these individuals may have created the long positions to protect against a short-term pullback in the outperforming shares.

On the fundamental front, named Baidu Inc's (ADR) (NASDAQ:BIDU) antivirus software the most promising product of its kind in 2013. Baidu Antivirus has actually taken home several awards this year, including the VB100 award from Virus Bulletin.


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