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Bullish Investors Wager on Ctrip.com Calls

CTRP also receives some bullish attention in the form of a long call spread

by 2/10/2012 10:31 AM
Stocks quoted in this article:

Bullish bettors honed in on Ctrip.com International (CTRP - 24.42) yesterday, as nearly 6,200 calls changed hands, which was triple the equity's average daily volume. Most popular was the out-of-the-money February 27 strike, where close to 2,400 of these calls were traded -- more than half of them at the ask price, signaling buyer-driven activity. Open interest on this option rose by 503 contracts overnight, indicating that some of the volume at this strike was comprised of newly opened positions. This call now carries open interest of 1,148 contracts. In order for investors to make a profit on these bought-to-open calls, the stock needs to muscle north of $27 by front-month expiration.

Meanwhile, a closer look at the data shows that 688 calls were bought at the February 26 strike, while an equal number of calls were simultaneously sold at the aforementioned 27 strike. By implementing this strategy -- also known as a bull call spread -- the trader is hoping that the stock will finish at or above $27 by the time February options expire. In the best-case scenario, the maximum profit is limited to 75 cents per pair of contracts (difference between strike prices, minus net debit of 25 cents), no matter how far CTRP rises above $27. Conversely, his potential risk is capped at the net debit paid.

From a broader sentiment standpoint, this affinity for CTRP calls is par for the course. The 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 6.44, conveying that calls bought to open have outnumbered puts by more than six to one during the past couple of weeks. This ratio sits just six percentage points below a 52-week acme, meaning that traders have been snapping up bullish options over bearish at a near annual-high pace.

Elsewhere, short interest on the travel website fell by 5.59% over the last two reporting periods. However, these bearish bets still account for a healthy 8.77% of CTRP's float, suggesting that some of the recent call volume may be the result of hedging activity by short sellers.

On the technical front, the equity has added around 3.5% so far this year, but has underperformed the broader S&P 500 Index (SPX) by 31% during the past 60 sessions. A look at the charts shows that the stock is hovering around its 10-week moving average, which had switched from resistance to support over the past three weeks.

In the morning hours of the session, however, CTRP is down about 1.2% to trade at $24.42.


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