Search Engine Firm Soars on Takeover Rumors

Takeover rumors are swirling around, and upside call buyers are stepping in.

OptionMonster's tracking systemsdetected the purchase of more than 4,100 September 55 calls, mostly of which priced for $0.25 to $0.30. Volume was almost twice open interest in the strike.'s shares rose and are up 19 percent in the last three months. The Chinese Internet stock has been moving sideways for the last two years and is still about 40 percent below where it peaked in May 2008.

This morning's call buyers seem to be reacting to chatter that the stock may be takeover target by online search giant .

SOHU reported better-than-expected sales and earnings on July 26. Overall options volume in SOHU is 10 times greater than average so far today, with calls outnumbering puts by 21 to 1.

There is evidence that broader sentiment is improving in Chinese stocks. The iShares FTSE/Xinhua China 25 Index exchange-traded fund, which tracks the country's broader markets, has been outperforming the S&P 500 over the last three- and six-month periods.

That marks a contrast with the year-to-date and 12-month periods. This year's shift in relative performance indicates that buyers are starting to return to China, almost three years after FXI peaked around $70 in October 2007. It now trades for $40.80, up 0.64 percent today.

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David Russell is a reporter and writer for OptionMonster.