Stocks tied to China have taken a big hit this week, including Chinese online travel company Ctrip.Com International Ltd CTRP. Despite a 7.7-percent sell-off since last Friday, one option trader stepped in with some large bullish bets on Monday.
Throughout the day on Monday, Benzinga Pro subscribers were notified of several unusual options trades related to Ctrip.
The Trades
The largest of the series of trades was a purchase of 2,864 Ctrip call options at a $44.50 strike price that expire on May 17. The calls were purchased at the ask price of 40 cents and represent a $114,560 bullish trade ahead of the company’s earnings report expected on May 21. The break-even price for the call options is $44.90, more than 10 percent above Tuesday's trading price.
The large buy took place roughly an hour after another Ctrip options buy of 509 Ctrip call options at a $45 strike price that expire on May 31. The $50,900 bullish bet could have been made by the same trader.
Options Insight
Due to the relative complexity of options trading, options traders are often seen as more advanced than the typical stock trader. Even if they aren’t trading options themselves, stock traders often watch for unusual options trades to provide some potential insight into what advanced institutional or wealthy individual traders may be thinking.
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Trade War Pessimism Overdone?
Monday’s Ctrip option trader may believe the stock has been unjustly punished on trade war fears. That trader may believe first-quarter earnings will surprise to the upside and/or a trade deal isn’t as far off as this week’s negative headlines suggest.
If it's the same trader behind both trades, he or she took one position ahead of earnings and one position after earnings. The larger position expires prior to earnings and will only pay off if the stock rallies on optimism prior to the earnings date.
Unfortunately, bullish call buying can also be a hedge against a larger bearish stock position, and it’s impossible to be 100 percent certain if an option trade is a hedge or not. However, given the Ctrip option trades’ relatively small size, it’s unlikely to be a hedge in this case.
At time of publication, Ctrip's stock traded at $41 per share.
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