Momo Inc (ADR) (MOMO) Breakout Spurs Accelerated Options Trading

Momo Inc (ADR) (NASDAQ:MOMO) has jumped more than 14% today, and is fresh off a record high

by Karee Venema

Published on Aug 23, 2016 at 2:24 PM

Shares of Momo Inc (ADR) (NASDAQ:MOMO) are breaking out, with the Chinese social media stock last seen up 14.3% at $19.78 -- fresh off a record high of $20.25. Against this backdrop, options volume is soaring, running at five times what's typically seen at this point in the day. Calls are outpacing puts by a more than 4-to-1 margin, too, with a number of options traders eyeing even higher highs for MOMO stock in the near term.

Specifically, short-term call traders are targeting the round 20 strike, with new positions possibly being purchased in MOMO's September and October series. If this is the case, the call buyers' goal is for the stock to rally back above $20 through front- and back-month options expiration at the close on Friday, Sept. 16, and Friday, Oct. 21, respectively.

From a wider sentiment perspective, options traders have shown a clear preference for calls over puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, speculators have bought to open 7,655 MOMO calls in the past 10 sessions, compared to just 502 puts. Plus, the resultant call/put volume ratio of 15.25 ranks in the 76th annual percentile.

Now appears to be an opportune time to purchase premium on MOMO's short-term options, too. For starters, the stock's Schaeffer's Volatility Index (SVI) of 51% ranks in the 17th annual percentile, indicating low volatility expectations are currently baked in to the equity's near-term options. Additionally, MOMO's Schaeffer's Volatility Scorecard (SVS) is docked at a high 83, suggesting the options market has historically underpriced the security's ability to make big moves on the charts.

And while some of this recent call activity could be a result of short sellers hedging, it's also possible that a portion of today's surge is due to Momo Inc (ADR) (NASDAQ:MOMO) shorts covering their bearish bets. Regardless, short interest dropped 11.7% in the latest two-week reporting period, but still accounts for a lofty 21.6% of MOMO's available float. At the equity's average daily pace of trading, it would take almost eight sessions to cover the remaining bearish bets.

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