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Sohu.com Inc (SOHU) Bulls Anticipate Positive Quarterly Report

But potential layers of resistance may stymie an earnings-related SOHU rally

by 7/25/2013 12:05 PM
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Sohu.com Inc (NASDAQ:SOHU) has been a technical standout for a while now. The online media firm, which is based out of China, has nearly doubled in value through the past 52 weeks, and at $67.72, finds itself within striking distance of its annual high of $69.66. What's more, the stock has outperformed the broader S&P 500 Index (SPX) by 24 percentage points across the last three months.

It comes as no surprise, therefore, that option bulls are charging SOHU ahead of its second-quarter earnings report, slated for release next Monday morning. Specifically, the August 70 strike -- which has grown by 1,000-plus positions in the last 10 sessions -- is home to peak front-month call open interest, indicating traders expect a positive quarterly report to boost the shares past the round number.

Taking a step back, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) are optimistic. Through the past 10 weeks, calls have been bought to open by a margin of 7-to-1 over puts, resulting in a 50-day call/put volume ratio of 7.04. That rate of call buying, relative to put buying, represents an annual bullish acme.

Furthermore, short-term speculators have taken a liking to SOHU. Schaeffer's put/call open interest ratio (SOIR) for the stock stands at 0.64, with calls outnumbering puts among options set to expire in the next three months. The SOIR ranks lower than 73% of readings taken in the past year, showing that traders are more inclined toward near-term calls than usual.

For Sohu.com, however, finishing in the money is hardly a given. Through the past two months, the aforementioned strike has served as a layer of technical resistance, and the accrual of open interest there could act as a potential layer of options-related resistance over the next several weeks.

What's more, despite posting earnings beats in five of its last eight visits to the earnings confessional, Sohu.com Inc (NASDAQ:SOHU) averages losses of 4.3% and 7%, respectively, the day and week after announcing results. For next Monday, the per-share forecast the stock needs to beat is 49 cents.


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