China's iQiyi Has Been a Smart Bet For Stock Bulls

Some are betting on IQ stock going to $50

Jun 14, 2018 at 2:42 PM
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Since going public back in March, China-based online media stock iQiyi, Inc. (NASDAQ:IQ) has been unstoppable. The shares have more than doubled in value since early May, last seen trading up 10% at $38.26, after earlier topping out at $39.74. This price action could be catching Wall Street off guard, too, with just six brokerage firms in coverage at the moment, which hold an average 12-month price target of just $23.99. Options traders are starting to take notice at least, as more than 63,000 calls have traded today, almost three times the daily average.

The most popular contracts by far are the June 35 and 40 calls, and all signs point to buy-to-open activity. These option bulls are betting on IQ shares extending their rally through the close on Friday, June 15, when the contracts expire. More ambitious option traders are buying to open the July 50 call, speculating on a nearly 31% rise in the equity by expiration on Friday, July 20.

According to trading data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), call buying had been the popular strategy coming into today. Roughly 54,000 calls were bought to open during the past 10 days at those exchanges, compared to fewer than 40,000 calls.

Meanwhile, some have taken iQiyi's massive rally as an opportunity to short the stock, with short interest soaring 69.2% in the last two reporting periods -- though, admittedly, that seemingly high percentage change is due to IQ's rather low overall short interest levels. Regardless, the security technically could be due for a pullback in the near term, since its 14-day Relative Strength Index (RSI) has zoomed to 91.77.

iq stock chart

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