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Call players are converging on Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) today, despite the stock's drop of over 3%. Approximately 9,100 contracts have been exchanged, which is almost double the equity's expected intraday call volume. By comparison, fewer than 1,700 puts have crossed the tape.
Digging deeper into the data, a block of 2,500 calls traded at the February 2014 55 strike near the ask price of $2.28 each, suggesting they were bought. Meanwhile, an equal number of calls simultaneously changed hands at the February 2014 65 strike -- slightly above the bid price at $0.53 apiece, implying they were sold. Since today's volume exceeds current open interest levels at both strikes, it's probable that one trader constructed a long call spread on CTRP for a net debit of $1.75 per pair of contracts.
In this moderately bullish strategy, the speculator is counting on the stock to rise north of $55 by February options expiration, but has offset his cost of entry by selling the deep-out-of-the-money calls. Breakeven in this scenario is $56.75, or the purchased strike plus the net debit. The trader's potential profit is capped at $8.25, or the difference between the strike prices, less the net debit. Meanwhile, his maximum loss is limited to the net debit paid.
CTRP has been a technical standout in 2013, soaring roughly 117% year-to-date to trade at $49.09. It should also be noted that Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) is tentatively scheduled to reveal quarterly earnings between Jan. 28 and Jan. 31, and has exceeded or matched analysts' projections in each of the past eight quarters. Even better for today's optimistic strategist -- the stock has gained an average of 3.4% the day after results were posted.