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Put players were out in full force on Qihoo 360 Technology Co Ltd (NYSE:QIHU - 32.46) yesterday, with the bearishly skewed contracts trading at more than four times their average daily pace. Short-term skeptics honed in on QIHU's front- and back-month series of options, and scooped up a collective 4,022 contracts at the stock's January 2013 31 and February 33 puts. The majority at each strike crossed at the ask price, and open interest rose overnight, indicating buy-to-open activity.
The out-of-the-money January 2013 31 puts were purchased for a volume-weighted average price (VWAP) of $0.48, meaning traders will begin to profit with each step south of breakeven at $30.52 (the strike price minus the VWAP) QIHU takes by next Friday's close, at which point front-month options expire. Meanwhile, breakeven for the in-the-money February 33 puts is $30.59 (strike less VWAP of $2.41), with speculators paying a higher premium in exchange for additional time (and an in-the-money strike) .
Widening the scope reveals that yesterday's rush toward puts was a change of pace for option players, who have been placing bullish bets over bearish with some rapidity of late. During the course of the past 50 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 312 calls for every 100 puts. What's more, the resultant call/put volume ratio of 3.12 ranks just 5 percentage points from a 52-week peak, suggesting calls have been bought to open over puts at a near annual-high clip in recent weeks.
The withstanding trend toward calls isn't surprising, considering the stock has nearly doubled in value during the past year. More recently, the security's positive price action has been highlighted by its 10- and 20-day moving averages, which helped lift QIHU to a new annual high of $33.13 on Monday. In light of this technical tenacity, Thursday's put buying could simply represent shareholders protecting their portfolio against a near-term consolidation. With the equity's Relative Strength Index (RSI) of 82 sitting solidly in overbought territory, a potential pullback isn't necessarily out of the question.