Is It Time to Scoop Up Weibo Corp (WB) Calls?

Weibo Corp (ADR) (WB) found a strong level of support on its recent pullback

Dec 6, 2016 at 11:05 AM
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China-based social media stock Weibo Corp (ADR) (NASDAQ:WB) has been soaring up the charts this year, tacking on 136% year-to-date, even with a 3.3% drop to $46 this morning. The shares topped out at an all-time peak of $55.93 in October, and have since pulled back to the 100-day moving average. Despite this technical strength, plenty of skepticism surrounds WB.

WB Daily Chart December 6

While analysts have maintained upbeat outlooks on the stock, traders don't seem to agree. Specifically, short interest represents a hefty 23.3% of WB's available float -- plenty of buying to fuel another run higher as these bears cover their positions. What's more, a piling-on of shorts through most of this year did nothing to slow the shares' rally. In fact, short interest peaked at a record high at roughly the same time as WB stock.

Meanwhile, options traders have shown an unusual preference for bearish bets. Though volume tends to be light, and calls have led on an absolute basis, WB's 50-day put/call volume ratio of 0.53 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than 82% of all comparable readings from the last 12 months.

It could be an attractive time to pick up Weibo Corp (ADR) (NASDAQ:WB) options, too. The stock's Schaeffer's Volatility Index (SVI) of 59% sits in the moderate 42nd percentile of its annual range, suggesting the equity's short-term options are pricing in below-average volatility expectations at the moment. But more compelling yet is WB's Schaeffer's Volatility Scorecard (SVS), which rests at a high 91. Simply stated, this means the options market has tended to seriously underprice the stock's ability to make outsized moves over the past year.

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