Call spread looks for rally in Sohu.com

optionMONSTER

Chinese Internet companies have been gaining strength, and one investor expects more upside in Sohu.com.

optionMONSTER's Heat Seeker monitoring system detected the purchase of some 2,100 September 70 calls for $3 and the sale of a matching number of September 85 calls for $0.61. Volume was more than more than triple open interest at both strikes, indicating that new positions were initiated.

The trade cost $2.39 and will earn a maximum profit of 527 percent if the stock closes at or above $85 on expiration. The strategy is known as a bullish call spread because it leverages a move between two prices.

SOHU is off 0.03 percent to $61.57 in morning trading but is up 18 percent in the last month. The stock has been climbing along with other companies such as E-Commerce China Dangdang and Ctrip.com as investors rediscover China's wide array of online businesses. (See researchLAB for others)

The stock peaked around $85 in August 2011 before proceeding to lose more than half its value over the next 11 months. The company operates in gaming, media, and search services.

Total option volume is about 2.5 times greater than average in the stock so far today, according to the Heat Seeker. Calls outnumber puts by 15 to 1.

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