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Option Brief: E-Commerce China Dangdang Inc (ADR) (NYSE:DANG) call volume exploded yesterday, finishing at 11 times the typical daily amount. By the numbers, 44,000 calls changed hands versus fewer than 1,500 puts. Against this backdrop, the stock's 30-day at-the-money implied volatility (IV) spiked by 12.7% to 89.4% -- its highest level since mid-August.
Accounting for roughly two-thirds of the call volume was the April 15 strike, where 29,639 contracts -- including a block of 14,279 -- crossed the tape. IV soared and open interest jumped at the strike overnight, implying new positions were created. What's more, Trade-Alert reports that most of the contracts -- including those from the aforementioned lot -- were bought to open, as speculators gambled on a continued rebound for DANG shares.
The e-commerce firm has struggled on the charts in recent weeks, but on Wednesday, the stock tacked on 12.7% to close at $14.56. Thus, the call buyers hope that yesterday's price action becomes a trend, as they bet on DANG toppling the 15 strike by front-month options expiration next Thursday afternoon. However, if the shares remain out of the money throughout the call's lifetime, the traders will part with no more than the initial premium paid. This morning, E-Commerce China Dangdang Inc (ADR) (NYSE:DANG) has given back 3.8% to hover at $14.01.