Dating App Drama Has Momo Stock Spiraling

MOMO put options are flying off the shelves

Digital Content Manager
Apr 29, 2019 at 10:11 AM
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China social networking name Momo Inc (NASDAQ:MOMO) is near the bottom of the Nasdaq today, on news that some mobile app stores in China have taken down the company's Tantan app at the direction of the Chinese government. Momo said it plans an internal review of the Tinder-like dating app, to make sure it's compliant with government rules and regulations, and warned that its "ability to attract new Tantan users will be adversely affected" until the app is restored. MOMO shares have dropped 8.8% to $33.63, in response, and put options are flying off the shelves. 

Today's plummet has MOMO stock on pace for its lowest close since a mid-March bull gap. Plus, the security is pacing to finish south of its 50-day moving average -- a recent area of support on the charts -- for the first time since mid-January. Nevertheless, MOMO remains roughly 44% higher year-to-date.

MOMO could be due for some analyst downgrades, should this negative price action continue. The stock has five "strong buy" ratings and one "buy," compared to just one "hold" and not a single "sell." What's more, the consensus 12-month target price of $41.92 now represents a nearly 25% premium to current levels.

Meanwhile, short-term options traders could be cheering. Momo's Schaeffer's put/call open interest ratio (SOIR) of 1.80 sits in the 99th percentile of its annual range. This means short-term option players have rarely been more put-heavy during the past 12 months. 

Today, MOMO has already seen more than 4,000 puts change hands -- 13 times the average intraday pace, and nearly double the number of calls traded. It looks like bears are buying to open the May 32.90 and 33.40 puts, which will move deeper in the money the further the shares sink beneath the strikes before May options expiration.


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