After Sina's run, bears are browsing


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Chinese web company Sina has enjoyed a big rally, but now the bears are logging on.

optionMONSTER's Depth Charge tracking system detected a surge of put buying in the company, which burst on the scene in September as investors scrambled for exposure to its fast-growing Weibo microblogging service. It proceeded to climb 66 percent since Pete first wrote about it but is flagging now.

SINA SINA surged 9 percent on Tuesday but fell immediately after yesterday's open and continued lower throughout the session. optionMONSTER's Depth Charge tracking system detected buying in the June 52.50 puts for $1.90 to $2, implying a drop of about 29 percent by the spring. Some 3,282 contracts traded at more than 115 times open interest.

The trade could also profit from a sudden drop in SINA shares even if they don't lose that much value because a big decline would drive up implied volatility and thus take option prices with it.

SINA's implied volatility is around 45 percent and has been bottoming around that level since July. Given the long time until expiration on yesterday's puts, it is likely that the trader is looking to profit from a change in volatility rather than just a directional move in the stock. (See our Education section for more on how implied volatility affects options at different expiration months.)

Bryan wrote about a potential bearish pattern on SINA's chart Monday, which followed call selling earlier in the month. Both stories also suggested that the shares were near a top.

The company's last earnings report on Nov. 16 was mediocre, and management issued weak guidance. Nonetheless, investors continued bidding the stock higher on optimism about Weibo, which has been growing faster than Twitter in its initial months.

Overall option volume in SINA was 10 times greater than average yesterday. Most of the calls that did trade were sold, which also bolsters the bearish case.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: SINA

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