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Option Bears Circle as Baidu Takes a Plunge

Puts have been popular on struggling BIDU

by 11/14/2012 10:15 AM
Stocks quoted in this article:

Option players have turned their attention to Baidu, Inc. (ADR) (NASDAQ:BIDU 96.78) puts in recent weeks, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the stock's 10-day put/call volume ratio of 0.86 ranks in the 89th percentile of its annual range, indicating puts have been bought to open over calls at an accelerated clip during the last two weeks.

This trend continued in yesterday's session, where roughly 52,000 contracts changed hands -- more than double the average daily volume for put options. Meanwhile, around 39,000 call contracts crossed the tape. In the soon-to-expire front-month series, the November 95- and 100-strike puts were popular. With BIDU currently trading near these strikes, it can be assumed that some of yesterday's activity represented positions being closed. However, a healthy portion of the respective 5,542 and 9,350 contracts that traded at each strike crossed at the ask price, and open interest rose overnight -- two indications that new positions were indeed added.

By buying to open the near-the-money November 95-strike put for a volume-weighted average price (VWAP) of $0.28, traders will profit with each step south of $94.72 (the strike minus the average premium paid) BIDU takes by the end of the week, when November options expire. Meanwhile, by purchasing the in-the-money November 100-strike puts, speculators expect BIDU to remain below the $98.74 mark (the strike minus the VWAP of $1.26) through week's end.

Technically, the shares of BIDU have been in a slump for some time. In fact, the stock has lost roughly 37% of its value since hitting a year-to-date high of $154.15 on Mar. 27. Additionally, over the course of the past 60 sessions, BIDU has lagged the broader S&P 500 Index (SPX) by more than 24 percentage points, on a relative-strength basis. On the charts, the equity is currently staring up at its 10-day moving average, which has ushered BIDU lower since late October.

To the delight of the aforementioned put buyers, the stock isn't getting much relief in today's session. BIDU plunged 1.9% right out of the gate, tagging a new annual low of $96.18 in the process. At last check, the equity was hovering just north of this dreary milestone.


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