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 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
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)