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Bearish Options Activity Abounds on Ctrip.com

Ahead of front-month expiration, one trader deepened his bearish stance on CTRP

by 3/16/2012 10:07 AM
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China-based Ctrip.com International, Ltd. (CTRP - 23.42) was started at "underweight" at Barclays Thursday morning, which may have given bears further incentive to target the stock ahead of options expiration today. Roughly 17,000 puts crossed the tape yesterday, reflecting 10 times the equity's average daily volume.

Looking closer at the data, it appears that the bulk of the action occurred at the March 24 strike and the April 23 strike. Specifically, one trader sold a block of 8,000 puts at the near-the-money, front-month strike, while simultaneously buying an equal number of puts at the out-of-the-money, back-month strike. This activity suggests the rollout of a long put position -- particularly since open interest rose overnight at the April put, while declining at the March put. The investor is essentially strengthening his bearish stance on CTRP, and has used the premium received from selling the front-month puts to offset the cost of purchasing the back-month puts.

This bearish skew toward the travel service provider is nothing new. CTRP sports a Schaeffer's put/call open interest ratio (SOIR) of 2.13, confirming that puts more than double calls among options scheduled to expire in three months. This ratio ranks in the 91st percentile of its annual range, which means that near-term options players have been more put-heavy toward the stock just 9% of the time over the last 12 months.

What's more, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 2.82 for CTRP, indicating that puts bought to open have nearly tripled calls during the past two weeks. This ratio registers in the 79th annual percentile, signaling that traders have been scooping up bearish bets over bullish at a faster-than-usual pace.

Technically speaking, CTRP has shed more than 37% of its value on a year-over-year basis, and has underperformed the broader S&P 500 Index (SPX) by close to 12% during the past 60 sessions. On the charts, the stock has spent the past two weeks trading beneath its 10-day moving average, a trendline that has served as both resistance and support since the beginning of the year.

In the first hour of the session, the equity is flat with yesterday's close of $23.42.


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