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The shares of Baidu Inc (ADR) (NASDAQ:BIDU) are following the broader equities market into the red, down 2% at $136.24 so far today. The stock is now in danger of ending beneath both its 10-day and 20-day moving averages for the first time since July 8, when the shares were hovering just north of $90. Nevertheless, some option traders are wagering on short-term support for the Chinese search concern.
In early afternoon trading, BIDU has seen roughly 11,000 puts change hands -- a 37% mark-up to its average intraday volume. More than two-thirds of the action has transpired at the out-of-the-money September 135 put, where 4,213 contracts have crossed on open interest of just 1,611 contracts, hinting at new positions. However, 93% of the puts traded on the bid side, suggesting they were sold.
By writing the puts to open, the sellers expect BIDU to remain atop $135 through the next few weeks. In the best-case scenario, the puts will expire worthless on Sept. 20, and the sellers can retain the entire premium received at initiation -- around the volume-weighted average price (VWAP) of $3.70. Should BIDU breach the strike before expiration, though, the sellers could be assigned, meaning they'd be on the hook to buy BIDU shares at $135 apiece -- a premium to Street value.
Technically speaking, Baidu Inc (ADR) (NASDAQ:BIDU) has tacked on 35.8% so far in 2013, and touched a new annual high of $143.12 earlier this month. The security's Relative Strength Index (RSI) sits at 68 -- on the cusp of overbought territory, implying a consolidation may have been in the cards.