Traders are showing a distinct preference for calls on Baidu, Inc. (BIDU) and YRC Worldwide Inc. (YRCW), although you'd be hard-pressed to find two stocks more diametrically opposed on the charts. While BIDU is extending its long-term ascent, the shares of YRCW are lingering near theoretical support at zero.
Baidu, Inc.
Calls have been gaining popularity on BIDU of late. During the past five days, traders on the International Securities Exchange (ISE) have bought to open 10,523 calls on the Internet search issue, compared to 7,773 puts. The stock's five-day ISE call/put volume ratio of 1.35 confirms that speculators have been favoring bullish bets over bearish in recent sessions.
In fact, taking a slightly longer-term look, BIDU's 10-day ISE call/put volume ratio of 1.76 ranks higher than 95% of other such readings taken during the previous year. This elevated percentile rank suggests that options traders on this exchange have snapped up calls over puts at a faster pace only 5% of the time.
However, the stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.08, in the 59th annual percentile. This reading points to a relatively modest amount of lingering skepticism among short-term options traders.
In the front-month series, call players have concentrated their efforts at BIDU's August 75, 80, and 85 strikes. These three calls are home to a combined total of more than 40,000 contracts. BIDU is currently trading right near $80, smack in the middle of these major call accumulations.
Elsewhere on Wall Street, short sellers have been adding new bearish bets on BIDU. Short interest rose by 5.8% during the most recent reporting period, and now accounts for 2.7% of the equity's float.
With short interest and buy-to-open call volume ramping up in tandem, it's quite possible that the option activity is related to increased hedging by the shorts. By purchasing out-of-the-money calls, short sellers can limit their upside risk for a relatively minimal upfront cost. If so, this would diminish the bullish sentiment readings suggested by BIDU's recent ISE stats.
After checking out the charts, it looks as though the shorts definitely have just cause to hedge their bets. BIDU has rallied more than 97% year-to-date, and the stock has outperformed the broader S&P 500 Index (SPX) by more than 23 percentage points during the past 60 sessions.
The equity's uptrend has been highlighted by solid trendline support. Since early February, BIDU has beat a steady path higher along its 10-day, 20-day, 50-day, and 80-day moving averages. The shares also recently broke out above short-term pressure in the $78 neighborhood, which could switch roles to act as an additional layer of support going forward.
YRC Worldwide Inc.
Calls are also popular on YRCW, with traders on the ISE buying to open 5,014 of these bullishly oriented options during the past five sessions. By contrast, only 32 puts were bought to open during this time frame, netting the shares a five-day ISE call/put volume ratio of 156.69.
The equity's 10-day ISE call/put volume ratio of 172.26 echoes this bias toward calls over puts. This ratio ranks higher than 88.8% of other such readings taken during the past 52 weeks, revealing that traders have shown a greater appetite for calls over puts less than 12% of the time.
Of course, considering YRCW's penny-stock status, it's not surprising to find a strong skew toward calls over puts. The fact is, there just aren't that many viable put strikes with which traders can capitalize on additional downside in the security.
However, like BIDU, YRCW's SOIR still indicates a slight bearish bias among short-term options players. The equity's SOIR of 0.52 rests in the 55th annual percentile, just narrowly on the pessimistic side of neutral.
Short sellers also maintain a sizable stake on YRCW, with 7.5% of the equity's float dedicated to short interest. Despite the security's low price on the charts, it seems as though a small contingent of bears remain convinced that they can capitalize on additional downside.
With the equity's Relative Strength Index (RSI) of 73 pointing to a short-term overbought situation, those skeptics may soon get their wish for a pullback. YRCW's recent rally along the support of its 10-day moving average was rejected by its 80-day trendline, and the shares are currently sandwiched about midway between these two moving averages.
Meanwhile, traders will want to stay tuned ahead of YRCW's earnings report, which is due to hit the Street on Aug. 3. The company has beaten analysts' expectations twice during the past four reporting periods, and fallen short on two other occasions -- so Tuesday's announcement could be the catalyst for the stock's next major move.
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