Options Traders Target New Highs for Weibo Stock After Earnings

WB stock is heavily shorted, even as the stock treads deeper into uncharted waters

Aug 8, 2017 at 3:07 PM
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Options traders are blasting Weibo Corp (ADR) (NASDAQ:WB), as what's seen as China's version of Twitter gets set to report second-quarter earnings first thing tomorrow morning. At last check, more than 19,000 WB options have traded -- four times the average intraday pace, and volume on track to settle in the 99th annual percentile. With Weibo stock fresh off a record high of $88.88, too, most of the action has centered on calls.

Specifically, 12,791 call options have changed hands, compared to 6,303 puts. Most active is the weekly 8/11 95-strike call, where it looks as if new positions are being purchased. If this is the case, options traders are targeting new record highs for Weibo shares by week's end, when the weekly series expires. 

Today's accelerated call volume echoes the activity seen in Weibo's options pits in recent weeks. In the past 10 trading sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 5,768 calls, versus just 883 puts. The resultant call/put volume ratio of 7.84 ranks in the 98th annual percentile, pointing to an unusual skew toward long calls over puts.

Given WB's impressive technical record -- the shares have more than doubled in value year-to-date to trade at $86.28 -- it's likely that some of this call buying is of the "vanilla" kind, meaning options traders are betting the stock will continue to rise. However, considering more than one-quarter of Weibo's float is sold short, it's also possible these bearish bettors are using the long call options to hedge against any more upside risk. 

However, some of these WB bears have begun to capitulate to the stock's upward momentum, with short interest down 4.4% in the most recent reporting period. It would still take shorts more than a week to cover the remaining shares, meaning there's ample sideline cash available to help fuel the security's fire.

Historically speaking, it's been a mixed bag in terms of Weibo's earnings reactions, with the stock closing higher in the session subsequent to reporting in four of the last eight quarters. Most recently, this resulted in a single-session post-earnings gain of 25% in mid-May for the Chinese social media name. This time around, the options market is pricing in a 14.8% swing for WB stock in tomorrow's trading, regardless of direction.

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