China Sock Boasting Ample Technical Support

Rapid hikes in short interest have led to rallies in the past

Mar 21, 2023 at 12:20 PM

BIDU

The shares of Baidu Inc (NASDAQ:BIDU) are breaking out in a bull flag pattern, staging a hard bounce off their 200-day moving average while conquering the +20% year-to-date level and coming just shy of their year-over-year breakeven.

The security has also pushed back above the $140 region -- which has controlled price action for most of the year -- as well as their year-to-date anchored volume-weighted average price (VWAP). With potential tailwinds coming from a tech rally as the Dollar Index (DXY) falls, now looks like an ideal time to buy BIDU calls.

It's also worth noting that short interest is up roughly 80% over the past couple months. Rapid hikes in short interest in 2021, 2017, and 2013 all led to rallies.

The security's Schaeffer's Volatility Index (SVI) of 51% ranks in the low 16th percentile of its annual range, indicating options players are pricing in low volatility expectations right now. Plus, BIDU’s Schaeffer's Volatility Scorecard (SVS) is on the rise, which has typically been a bullish signal in the past.

Our recommended call has a leverage ratio of 5.4, and will double in value on a 19.2% pop in the underlying shares.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this BIDU commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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