Option Bulls Bet On Rallying YOKU and ADR

Youku Tudou Inc (ADR) (YOKU) and E Commerce China Dangdang Inc (ADR) (DANG) are tearing it up today

by Alex Eppstein

Published on May 22, 2015 at 1:38 PM
Updated on Jun 24, 2020 at 10:16 AM

China-based stocks are putting on a show this afternoon, with a number of notable names sharply higher. Among the equities making impressive upward moves are Youku Tudou Inc (ADR) (NYSE:YOKU) and E Commerce China Dangdang Inc (ADR) (NYSE:DANG). All the while, options traders are rolling the dice on additional short-term gains.

Diving right in, YOKU was last seen 13.3% higher at $30.55, and is fresh off an annual peak of $31.40 -- the second straight day in which it's notched this milestone. As such, calls are being exchanged at five times the usual intraday rate, and new positions are being purchased at the June 35 call. In other words, the buyers expect YOKU will take out $35 -- a mark last cleared in March 2014 -- by the close on Friday, June 19, when front-month options expire.

Today's activity is unusually bullish for the stock, despite its more than 71% year-to-date lead. For one, almost 17% of YOKU's float is sold short -- which would take about six days to buy back, at average daily trading volumes. For another, during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has racked up a put/call volume ratio of 1.17 -- in the 82nd annual percentile.

Shifting our focus to DANG, today's 9.5% pop has the stock sitting on a 12.5% year-to-date advance at $10.45. The security's intraday peak of $10.58 also represents territory not charted since early December.

Meanwhile, DANG calls are trading at eight times the volume expected at this point in the session, and six times the rate of puts. Possible buy-to-open activity is detected at the June 11 call, as speculators wager on the stock to topple the strike by June expiration.

However, unlike Youku Tudou Inc (NYSE:YOKU), call buying is the norm on E Commerce China Dangdang Inc (NYSE:DANG). During the past 10 days at the ISE, CBOE, and PHLX, more than 17 DANG calls have been bought to open for every put. The resultant call/put volume ratio of 17.05 is higher than four-fifths of similar readings from the previous 12 months.


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