Bulls discovering E-House China
David Russell | [email protected]
The Shanghai-based property company received little attention for most of the year. A shift to online marketing helped business, but sentiment was hampered by concerns that authorities would clamp down on real-estate lending. Then the fireworks hit on Monday.
Analysts in Asia said regulators may now ease investing restrictions, making it easier for developers to borrow money. That triggered a massive rally in EJ, catapulting the shares up 29 percent in the session.
Activity shifted to the option market yesterday, one session after the stock rallied. optionMONSTER's Heat Seeker monitoring system detected the purchase of about 4,000 February 9 calls, most of which priced for $0.25. There was no open interest in the strike before the trade occurred, so new money was definitely put to work.
These long calls lock in the price where shares can be purchased, letting investors cheaply position for upside while limiting potential losses. They also have the potential to generate significant leverage: A move to EJ's 2012 peak of $7.61 would more than double the value of the contracts. The shares rose another 6.33 percent to $6.38 yesterday. (See our Education section)
EJ is the most recent in an ongoing list of bullish plays in the world's most populous country. Solar stocks began rallying earlier this year, and Chinese Internet companies have been explosive in the last three months.
Total option volume in EJ was 49 times greater than average on Tuesday, with calls outnumbering puts by a bullish 76-to-1 ratio. Earnings come out Friday morning.