Changyou.com has been stuck in a range for more than a month,
but one investor remains bullish on the Chinese gaming stock.
optionMONSTER's Heat Seeker tracking system detected the sale of
3,506 March 26 calls for $0.65 against existing open interest.
Seconds later, an equal number of April 27 calls were bought for
$1.35, resulting in a net cost of $0.70.
The activity appears to be the work of an investor who previously
owned the March contracts in hopes of a rally. Now the trader is
rolling the position forward by a month before it expires at the
end of this week, avoiding the quickening pace of time decay that
occurs at the end of an option's lifespan. (See our
CYOU fell 0.46 percent to $26.17 yesterday. The stock has been
milling sideways along its 100-day moving average since early
February, when it gapped lower on a mixed earnings report. Downside
has been limited during that time, and sentiment is starting to
turn bullish in other Chinese Internet companies.
The stock also appears cheap by some metrics. CYOU trades at about
5 times forward earnings, despite profit growing at more than 20
percent a year. In addition, enterprise value is also only about 3
times EBITDA. And, like many other Chinese stocks, CYOU remains far
below its levels from the first half of 2011.
All those considerations could help make investors believe that
it's due for a rally.
Overall option volume in the name was 15 times greater than average
in the session, and calls outnumbered puts by almost 300 to 1.
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