Are NQ Mobile Inc (ADR) (NQ) Shorts Hedging With Call Options?

NQ Mobile Inc (ADR) is surging following news of an $80 million buyback program

by Karee Venema

Published on Dec 23, 2014 at 12:33 PM
Updated on Jun 24, 2020 at 10:16 AM

NQ Mobile Inc (ADR) (NYSE:NQ) is soaring today -- up 24.3% at $4.30 -- following the company's latest fundamental development. Specifically, NQ's board of directors approved an $80 million share-buyback program. Today's bullish gap is most likely being met with mixed reactions on the Street, with sentiment split in and out of the options arena.

In NQ's options pits, for example, the stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 5.83 ranks in the 84th annual percentile. Simple stated, calls have been bought to open over puts at an accelerated clip in recent months.

Likewise, NQ's Schaeffer's put/call open interest ratio (SOIR) of 0.27 ranks lower than 98% of similar readings taken in the past year. In other words, short-term speculators have rarely been as call-skewed toward the equity as they are now.

Outside of the options arena, however, short interest accounts for 14.8% of the equity's available float, and it would take nearly seven sessions to cover these bearish bets, at average daily trading volumes. In light of this, some of the recent call buying -- particularly at out-of-the-money strikes -- may have been at the hands of short sellers hedging against an unexpected rally.

Regardless, now is an opportune time to buy short-term options on NQ Mobile Inc (ADR) (NYSE:NQ). Per the equity's Schaeffer's Volatility Index (SVI) of 117%, which ranks in the 30th annual percentile, premium on NQ's front-month options is pricing in relatively low volatility expectations at the moment.

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