Does the Youku Tudou Inc. (YOKU) Rebound Have Legs?

Youku Tudou Inc (ADR) (YOKU) traders are buying calls amid a sector rally

Apr 8, 2015 at 2:58 PM
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Chinese Internet stocks are skyrocketing this afternoon, and Youku Tudou Inc (ADR) (NYSE:YOKU) is no exception, up 15% to $15.99. Accordingly, options traders are betting bullishly on YOKU, as call activity in the options pits is ramping up.

Calls are moving at nearly double the average daily rate, and are outpacing puts by a roughly 4-to-1 ratio. The day's two most active options by a considerable margin are the May 18 call and the April 15 call, with buy-to-open activity indicated at both strikes. By purchasing the calls to open, speculators are rolling the dice on the equity to finish north of the strike prices by their respective expiration dates of Friday, May 15, and Friday, April 17. YOKU hasn't been atop $18 since early February.

Prior to today, puts were the popular choice in the options pits, with YOKU just off an all-time low of $11.85, hit March 31. Specifically, YOKU's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.73 stands in the 88th percentile of its annual range. Simply stated, puts have been bought to open at a faster clip only 12% of the time over the past year. Traders are paying historically bottom-of-the-barrel prices for their short-term bets on the stock, as its Schaeffer's Volatility Index (SVI) of 0.42 ranks higher than just 11% of all equivalent readings taken over the past year.

Short sellers have taken a shine to Youku Tudou Inc (ADR) (NYSE:YOKU) as well, with short interest increasing over the last two reporting periods. Currently, almost 11% of YOKU's available float is sold short, which would take nearly two weeks to cover, at average trading volumes.

Daily Chart of YOKU Since October 2014
 

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