Stocks quoted in this article:
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is extending its earnings-induced climb, with the shares up 0.8% at $126.90. What's more, some option traders are rolling the dice on even more upside for the Chinese search engine, with calls flying off the shelves at an accelerated clip.
In afternoon action, BIDU has seen about 25,000 calls change hands -- a 54% mark-up to its average intraday call volume. On the flip side, just 13,000 BIDU puts have traded so far.
Attracting notable attention is the October 135 call, where more than 1,700 contracts have traded at a volume-weighted average price (VWAP) of $5.46. Ninety-one percent of the calls crossed on the ask side, and volume has surpassed open interest at the strike, hinting at freshly bought bullish bets.
By purchasing the calls to open, the buyers will begin to profit if BIDU climbs atop $140.46 (strike price plus VWAP) before October options expire. From the equity's current perch, it would take an ascent of 10.7% in order to hit breakeven. Risk, meanwhile, is capped at the initial premium paid for the calls, should BIDU fail to rally north of $135 -- a level not toppled since May 2012.
It's possible, however, that the aforementioned call buyers are shorts in disguise. Short interest accounts for 5.6% of BIDU's total available float, and would take nearly a week to buy back, at the stock's average daily trading volume. Against this backdrop, short sellers could be picking up out-of-the-money call options to hedge their pessimistic positions.
Broadening our sentiment scope, today's preference for relatively short-term calls marks a change of pace for BIDU. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.15 stands higher than 85% of all other readings of the past year, implying that near-term traders are more put-heavy than usual.
On the charts, BIDU has added more than 14% so far this week, thanks to the aforementioned earnings beat. The security is now on pace to end north of its 80-week moving average for just the second time since mid-2012.