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Bulls Return to China Shop With Sina

David Russell|Writer, OptionMonster
Thursday, 13 Sep 2012 | 6:22 AM ET
The office of Alibaba (China) Technology Co.
Guang Niu | Getty Images AsiaPac | Getty Images
The office of Alibaba (China) Technology Co.

The bulls are coming back to the China shop, looking for a rally in e-commerce stock Sina.

OptionMonster’s tracking programs detected the purchase of 10,000 December 80 calls for $1.88 and the sale of 10,000 December 90 calls for $0.78. There was virtually no open interest in either contract before the trade appeared, so this is a new position.

Buying calls locks in the entry price for a stock, while selling them obligates a trader to unload shares at a certain level if they are above it. In the case of yesterday’s transaction, they have the right to buy Sina shares for $80 and then must sell it for $90 if it's over that higher price. They paid $1.10 for that $10 spread.

Sina shares closed yesterday at $64.38, up 1.23 percent. Although it would have to rally about 40 percent to reach $90, the option strategy would leverage that move into a profit of more than 809 percent!

The stock is trying to rebound from a major pullback that erased more than two-thirds of its value between April 2011 and July 2012. The last earnings report on Aug. 15 beat expectations, and management remained positive on monetizing its Weibo microblogging service.

Overall option volume was more than triple the daily average in Sina yesterday, with calls outnumbering puts by 5 to 1.

—By CNBC Contributor David Russell

Additional News: China’s Export Slump Drives Vendors Online

Additional Views: Bulls See No Limit for Skyworls Solutions: Russell

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Disclosure

David Russell is a reporter and writer for OptionMonster. Russell has no positions in SINA.

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