Thursday, March 8, 2007

Baidu.com (BIDU) - A Curious Options Trade

One thing I've learned from the awesome option pros who are Jon and Pete Najarian at Optionmoster.com is to keep an eye on options trading volume vs open interest.

One that's caught my eye today is more than 6-thousand March 125 BIDU puts that traded today against open interest of just over 1-thousand contracts. That's a curious purchase because of how deep in the money those puts are (stock at $105) and for its cost. 6000 contracts at about $20 each is $12 mln worth of options. It's intriguing given the time frame - expiration on these March puts is next week. Incidentally, there was no matching volume on the call side, or in other months; so no evidence of a time spread or straddle.

In addition, over 2000 April 105 puts traded today against open interest of 667 contracts. hmmm.

4 comments:

adam said...

a trade like that in BIDU March 125 puts is probably just paired vs. stock and prearranged as a package. Someone maybe couldn't borrow it, so did this to get long some stock.

The Aprils though, that could be something more.

Lawrence said...

I think you meant to say "so did this to get short some stock" since the trade involved buying puts.

adam said...

no, i said it right. There are 2 sides. One guy buys stock and buys deep puts in order to get himself long the stock. The other guy takes the opposite side for maybe a penny, or the short interest he might earn if he doesn't get assigned the puts.

Lawrence said...

Another possibility is that it's a straight bearish bet on BIDU over the next week. In which case, the person who bought those puts is a very smart person! His $12 million bet is up 17% or $2 million bucks!