The China bulls are tuning in for more upside in Youku Tudou.
optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,000 December 25 calls in the provider of streaming-television services for $2.24, while an equal number of December 30 calls were sold at the same time for $0.89. Volume exceeded open interest at both strikes, indicating that new positions were initiated.
Owning calls locks where a stock can be purchased, while writing them creates an obligation to sell if a certain level is reached. Combining the two lets investors control a move between two prices. In the case of today's trade, they will collect $5 if YOKU closes at or above $30 on expiration. He or she paid $1.35 to open the strategy, implying profit of 270 percent.
Known as a vertical spread , the strategy is commonly used to generate leverage. (See our Education section)
YOKU is off 0.3 percent to $23.60 in afternoon trading but is up 27 in the last two months. While other Chinese Internet stocks have been red-hot all year, as shown on our researchLAB analysis tool, YOKU only started rallying in July. Its moving averages are lining up bullishly, and today's trader is positioning for a break above long-term resistance around $25.
Total option volume is twice the daily average so far in the session, with calls outnumbering puts by a bullish 57-to-1 ratio.
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