Baidu Inc (BIDU) Options Traders Pick Sides Ahead of Earnings

Baidu Inc (BIDU) will report earnings tonight

Oct 27, 2016 at 2:48 PM
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Ahead of tonight's earnings report, Baidu Inc (ADR) (NASDAQ:BIDU) call options are flying off the shelves. Roughly 20,000 contracts are on the tape -- compared to an average daily volume of 10,000 -- while call options roughly double the number of puts on the tape so far.

Among the options in the lead is the weekly 10/28 175-strike call. Based on data from the International Securities Exchange (ISE), there looks to be a mix of buy- and sell-to-open activity happening at the near-the-money strike. The goal for buyers is for BIDU to rally past $175 by tomorrow night -- when the option expires -- hopefully boosted by an upbeat earnings report. Meanwhile, sellers are counting on the strike to act as a short-term speed bump.

Longer term, though, call buyers certainly have had the advantage. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have purchased nearly twice as many calls as puts over the past two weeks. The resultant call/put volume ratio of 1.93 ranks in the bullishly skewed 82nd annual percentile.

However, history doesn't appear to be on the side of option bulls. Over the last eight quarters, BIDU has ended lower in the session subsequent to earnings five times. Most recently, the shares shed 3.6% in the immediate aftermath of the company's late-July report.

High hopes aren't restricted to the options arena, though. Two-thirds of analysts rate BIDU a "buy" or better. Plus, short sellers have been hitting the deck, with short interest plunging 12.6% in the most recent reporting period. As it currently stands, a mere 1.6% of the stock's total float is sold short.

Technically speaking, Baidu Inc (NASDAQ:BIDU) has had a seesaw year, and is currently at about a 50% retracement of its February lows and late-April highs. Overall, though, the setup doesn't look especially promising for the stock. Despite being 1.2% higher at $174.87 today, the shares' year-to-date deficit sits at 7.5%. Plus, the overhead 100-week moving average, which rejected a BIDU rally in the spring, could once again limit any potential moves higher.

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