Markets

Can Alibaba revive Chinese Internets?

Alibaba isn't the only Chinese Internet stock on investors' radar today.

The Hangzhou-based e-commerce company started trading about an hour ago, leaping 36 percent to $92.34 from its original $68 offer price. Earlier in the session, optionMONSTER's Heat Seeker monitoring program detected a pair of bullish trades in Ctrip.com, an online travel agency, and content provider Phoenix New Media.

CTRP hit first, with 5,000 October 65 calls bought for $1.40 and 5,000 October 70 calls sold for $0.45. Known as a bullish call spread , the position cost $0.95 and will expand to $5 if the stock closes at $70 or higher on expiration five weeks from now. That would represent a profit of more than 400 percent from the shares moving about 17 percent.

Owning calls sets where an investor can sell a stock, while selling them forces him or her to exit if a certain level is reached. Combining the two strategies allows them to play a move between two prices. Given the low initial cost, the technique can produce significant leverage.

FENG had a similar trade, with 1,000 January 10 calls bought for $1.06 and an equal number of January 12.50 calls sold for $0.26. This time, it cost $0.80 and will earn more than 200 percent if the stock closes at $12.50 or higher early next year.

CTRP is off 1.26 percent to $60.46 in afternoon trading, and FENG is down 3.04 percent to $9.58. Both more than doubled in 2013 but have been range bound more recently. Total option volume was 5 times greater than average in CTRP and 19 typical amounts in FENG. Calls outnumbered puts by a wide margin in both.

Chinese Internet stocks have struggled since the spring, when investor sentiment shifted away from many high-multiple technology companies. (See our researchLAB analysis tool for more on the group.)

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

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

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