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Ctrip.com Bulls Predict a Front-Month Surge

Can CTRP climb high enough to reward September speculators?

by 9/6/2012 9:32 AM
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Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP - 16.37) has seen a flurry of bullish options activity lately, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the equity sports a 20-day call/put volume ratio of 11.85 -- meaning calls bought to open have outpaced puts by a margin of almost 12 to one during the past month. What's more, CTRP's Schaeffer's put/call open interest ratio (SOIR) of 0.77 hovers just four percentage points above a yearly low, signaling that near-term traders have rarely been more call-heavy toward the stock.

Wednesday's session proved to be no exception, during which CTRP saw around 3,900 calls change hands -- more than doubling the security's average daily volume. Most active proved to be the near-the-money September 17 strike, where roughly 3,500 calls crossed the tape -- the bulk of them at the ask price, pointing to buyer-fueled volume. These contracts traded at a volume-weighted average price (VWAP) of $0.70. With implied volatility last seen 5.8 percentage points higher -- along with the fact that open interest at this strike rose by 2,451 contracts overnight -- it can be assumed that new positions were added here. By buying these calls to open, traders are betting on the stock to surmount $17.70 (strike price plus VWAP) by front-month expiration.

Meanwhile, short interest on the travel website jumped by almost 8% during the last two reporting periods, and now accounts for more than 9% of CTRP's available float. It would take more than six days to cover these shorted shares, at the stock's average pace of trading. This implies that some of the recent call volume could be the work of short sellers looking to hedge their bearish bets.

However, there isn't much love to be found for CTRP among the group of analysts covering the stock. Only two "buy" or better ratings have been handed out, compared to nine "holds" and one "strong sell" recommendation. Additionally, the security's average 12-month price target -- as noted by Thomson Reuters -- stands at $17.74, reflecting a premium of just 8% to Wednesday's closing price of $16.37.

CTRP has put forth a dismal technical performance lately, considering its year-over-year loss of almost 60%, as well is its year-to-date decline of about 30%. A look at the charts shows that the stock's latest rally attempt was thwarted by its 100-day moving average, which has kept lid over the equity for more than a year. What's more, the $17.50 area -- which has not been surpassed on a daily closing basis since June -- appears to have emerged as a level of resistance. Given these technical hurdles, yesterday's call players may end up rethinking their bullish bets over the next couple of weeks.


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