Options Trading News

October 3, 2013  Thu 3:16 AM CT

Traders have been flocking to Chinese Internet stocks almost every day, and now Renren is grabbing the attention.

optionMONSTER's trade scanners detected the sale of more 5,000 January 3.50 puts for $0.30 and $0.35. Volume surpassed previous open interest of 4,461 contracts, indicating that new positions were initiated.

The investor is now on the hook to buy shares in the social-media stock for $3.50 if they close below that level on expiration. Above it, he or she keeps the premium as profit and the options expire worthless.

Put selling is commonly used when traders like a stock but don't want to expend capital getting long. It lets them collect income now while programming an entry at lower prices. The strategy also reflects a belief that downside is limited. (See our Education section)

RENN surged 7.69 percent to $3.92 yesterday, following an 8 percent gain in the previous session. The Beijing-based company has underperformed other Chinese Internet stocks in recent months but has been holding support above its 200-day moving average since late July, which could make some chart watchers think that it's ready to turn around.

Chinese Internet names have been the strongest group in the stock market for the last three months on our researchLAB market scanner, as shown on the screen shot below, but RENN has been the weakest member during that time.

Traders may also expect the $3.50 level to offer support because it's where the shares peaked in September. That could also help explain yesterday's put selling at that level.

Total option volume was 12 times greater than average in the session.

(Graphic courtesy of researchLAB)
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