500.com Limited (WBAI) Bears Aren't Buying the Post-Earnings Success

500.com Ltd (NYSE:WBAI) is making a run up the charts just a day after losing 9%

May 19, 2015 at 2:07 PM
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A well-received first-quarter report -- and the resignation of CEO Man San Law -- has 500.com Ltd (NYSE:WBAI) at its highest point since mid-December, with the shares up 24.7% at $20.88. In the stock's options pits, though, puts are crossing at six times the pace usually seen at this point in the day, with buy-to-open action seemingly taking place at the June 17.50 put -- a theory echoed by data from the International Securities Exchange (ISE). In other words, traders are betting on WBAI's climb up the charts to be short-lived, predicting a move back below $17.50 by the close on Friday, June 19, when the contracts expire.

Generally, the equity's speculators prefer to buy calls over puts, judging by data from the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Across these exchanges, traders have bought to open 2.38 WBAI calls for every put during the past two weeks.

However, during the two most recent reporting periods, short interest on the stock rose 44.1%, and now represents over one-third of its float. Moreover, it would take bears more than seven sessions to repurchase these shares, at WBAI's normal daily volumes. This suggests some of the recent call buying -- especially at out-of-the-money strikes -- could have been shorts hedging their bets.

Today's gains come after a day when shareholders saw 500.com Ltd (NYSE:WBAI) lose 8.9% of its value. Looking back farther on the charts, the stock has been a laggard, losing over 35% in the past 12 months. However, with today's gains, the shares are on pace to close above their 160-day moving average for the first time since August 2014.


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