Did Kandi Technologies Group Inc's (KNDI) Earnings Crush Option Bulls?

Long calls were popular on Kandi Technologies Group Inc (NASDAQ:KNDI) heading into earnings, but these traders may have had an ulterior motive

Nov 9, 2015 at 3:18 PM
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Kandi Technologies Group Inc (NASDAQ:KNDI) is trading sharply lower today, dropping 15.7% to hit $9.10, following the China-based electric automaker's dreadful quarterly profit. As such, the stock has found a spot on the short-sale restricted list, spurring bears to the options pits. Specifically, puts are crossing at four times the typical afternoon pace.

One KNDI put seeing potential buy-to-open action is the weekly 11/13 9.50 strike, suggesting traders are betting on extended losses from the stock by week's end, when the series expires. Other traders are using puts in other ways. The weekly 11/13 8.50-strike put appears to be seeing sell-to-open activity. In other words, speculators believe the shares will hold above $8.50 through Friday's closing bell. 

Looking back, the most popular contract leading up to the firm's earnings report was the weekly 11/13 10-strike call. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) confirms all the contracts that crossed here were bought to open, meaning traders were betting on a post-earnings pop from KNDI. This strike is the third-most-active option today, though data suggests traders may be selling to close some losing positions. 

Call buying was popular long before last week. KNDI's 50-day ISE/CBOE/PHLX call/put volume ratio of 3.75 outranks 83% of all other readings from the past year. In short, call buying has been much more popular than normal over the past several months. 

It's worth noting, though, that short interest accounts for 18.4% of the stock's float. This represents over 13 days' worth of buying power, at KNDI's average trading pace. So, one has to consider the possibility that some of the recent interest in long calls might be attributable to short sellers hedging their positions ​ahead of the quarterly event. 

Looking to the charts, Kandi Technologies Group Inc (NASDAQ:KNDI) has been strong in October -- up over 78% for the month -- but still remains 35% lower year-to-date. The shares are now set to close below their 10-day moving average for the first time since Oct. 1. 

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