How trader is staying in Changyou.com

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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 Education section)

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.



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

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


This article appears in: Investing , Options

Referenced Stocks: CYOU

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