Momo Inc (MOMO) Bull Gap Has Options Traders Buzzing

Momo Inc (ADR) (MOMO) is rocketing after an SEC filing showed CEO Yan Tang has taken a major stake

by Alex Eppstein

Published on Apr 6, 2016 at 10:55 AM
Updated on Jun 24, 2020 at 10:16 AM

Momo Inc (ADR) (NASDAQ:MOMO) is going gangbusters, with shares of the social networking platform up 29.6% at $15.60. Lifting the stock is a new Securities and Exchange (SEC) filing, showing CEO Yan Tang has taken a 25.9% stake in the firm. Amid the buzz, trading volume on MOMO stock and options both register near the 100th percentile of their respective annual ranges.

Digging deeper in the options pits, roughly 11,000 options are on the tape -- 22 times the expected intraday clip. Calls outweigh puts by a roughly 2-to-1 margin, and the July 17.50 call is the most active MOMO strike overall. All signs point to buy-to-open activity at the out-of-the-money strike, suggesting traders expect the stock to take out $17.50 by July options expiration -- and reach territory not charted since June 2015.

Amid relatively light volume, call buyers have been active in MOMO's options pits recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have bought to open six times as many calls as puts over the past 10 sessions. The corresponding call/put volume ratio registers near the top quartile of its annual range.

At the same time, short interest has been growing, and represents roughly one-third of MOMO's float. Currently, 4.8 million shares are sold short, the highest level since last June. Therefore, it's possible a portion of the MOMO call buyers may be short sellers hedging against a sustained rally.

Today's gap higher extends Momo Inc's (ADR) (NASDAQ:MOMO) recent surge, since it touched an all-time low of $6.72 in early February. However, the stock is still trying to fight its way into positive year-to-date territory, currently down about 3%.

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