4 Chinese Stocks Proving Ackman Right

A closer look at recent options activity among struggling Chinese stocks Qihoo 360 Technology Co Ltd (NYSE:QIHU), SINA Corp (NASDAQ:SINA), Weibo Corp (ADR) (NASDAQ:WB), and Youku Tudou Inc (ADR) (NYSE:YOKU)

by Alex Eppstein

Published on Jul 15, 2015 at 1:57 PM

During his speech at the Delivering Alpha Conference today, activist investor Bill Ackman warned investors about the threat China poses to global markets. "If you look at the Chinese financial system, you look at shadow banking, you look at the amount of leverage, you look at how desperately they worked to keep the stock market up. It looks worse to me than 2007 in the U.S.," Ackman said. His remarks arrive as Chinese markets have resumed their downward trend in recent sessions, with a number of U.S.-listed stocks getting hammered -- including Qihoo 360 Technology Co Ltd (NYSE:QIHU), SINA Corp (NASDAQ:SINA), Weibo Corp (ADR) (NASDAQ:WB), and Youku Tudou Inc (ADR) (NYSE:YOKU).

Cybersecurity firm QIHU is 4.6% lower at $61.06, with the shares on track to close below their 40-week moving average for the first time in seven weeks. This is bad news for recent call buyers, who may be betting on the firm to go private. Specifically, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 7.12  ranks in the 95th percentile of its annual range -- suggesting near-extreme levels of optimism toward Qihoo 360 Technology Co Ltd.

Meanwhile, online media firm SINA has plunged 5% to trade at $42.83. In fact, since touching an annual high of $61.25 in mid-June, the shares have lost 30%. Option buyers are rolling the dice on additional downside, too. SINA Corp's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.49 rests just 8 percentage points from a 52-week peak.

Social media stock WB is also down 5%, hovering near $14.20 -- and back in the red on a year-to-date basis. In recent sessions, the shares have faced overhead resistance at their rapidly declining 10-day moving average. However, option traders are counting on a bounce, buying to open more than eight calls for every put over the last 10 sessions at the ISE, CBOE, and PHLX. Specifically, Weibo Corp's 10-day call/put volume ratio of 8.55 outranks 71% of comparable readings from the previous year.

Finally, Internet TV firm YOKU is staring at an intraday deficit of 6.1% at $19.38, pressured lower by its descending 10-day moving average. Since hitting a 52-week high of $31.50 in early June, the stock has surrendered 38.5% of its value. This is music to the ears of recent put buyers -- of which there have been many. During the last 10 weeks at the ISE, CBOE, and PHLX, Youku Tudou Inc has amassed a put/call volume ratio of 0.97 -- topping all but 16% of readings recorded in the past 12 months.

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