Ctrip.com Options Traders Nearly Triple Their Money

Wall Street was overly bearish on Ctrip.com stock, even though the shares were comfortably higher in 2017

May 25, 2017 at 1:07 PM
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Subscribers to Schaeffer's Event trading service recently enjoyed a 198% gain thanks to Ctrip.Com International Ltd (ADR) (NASDAQ:CTRP) May 50 calls. Below, we'll look back at how CTRP stock found its way on our bullish radar, and how the options trade unfolded. 

Back in mid-April, reports surfaced that the China Consumers Association was investigating Ctrip.com, and the stock initially sold off on the news amid its heaviest trading volume since November. However, the shares quickly recovered from this "climatic" session to show bulls were in charge, gaining in four straight sessions before we entered our position on April 27. The equity quickly rallied back to the $50 level, signaling a successful breakout from a rectangular pattern was in place, with CTRP stock sporting a 25% year-to-date lead at the time. 

Short interest had been declining on the shares -- a potential boon for the stock price -- but still represented eight days' worth of buying power, based on average daily volumes. Not only that, but the equity had a 10-day put/call volume ratio of 2.93 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranked in the 98th annual percentile. The overwhelming pessimism being levied toward Ctrip.com stock, combined with its promising technical setup, made it a prime candidate for a bullish contrarian trade. 

Shortly after we initiated our trade, CTRP shares stretched their win streak to eight. Then, on May 9, the stock made a strong upside move ahead of earnings, and we recommended traders close half of their call options. We closed the final leg of the trade on May 19, allowing Ctrip.com options traders to nearly triple their money. 

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