Chinese Internet company Sina Corp. rose to an eight-month high in New York and bullish option trades jumped to 24 times the four-week average after Auriga USA LLC said Sina’s Weibo social network is dominating the market.
The operator of China’s third-most-visited website rose 2.8 percent to $45.91 on the Nasdaq Stock Market yesterday. Almost 15,000 calls to buy the stock changed hands, quadruple the number of puts to sell. The most-active contracts were October $48 calls, which accounted for almost half of call trades.
“Traders were aggressively buying out-of-the-money calls in October, feeling its Weibo product could drive growth,” said Joe Kunkle, founder of OptionsHawk.com, a Boston-based provider of options market data and analytics. “They’re predicting that shares will break to new highs by October.”
Weibo can be a “game-changer” that boosts Sina shares “significantly” once the company can monetize the platform by selling advertising and other services the way that Twitter and Facebook have, Tian Hou, an analyst at Auriga in New York, wrote in a report today. The stock’s valuation may increase to 38 times analysts’ estimated profit in the next year from 26 now, she said.
“Weibo, a Twitter-like product and service, has become a phenomenon in China, with SINA taking absolute market leadership in terms of the registered user base,” Hou wrote in a note today.
The Shanghai-based company said Aug. 5 that second-quarter profit rose 89 percent after the company sold more online advertising in the world’s biggest Internet market. Sina has rallied 25 percent since Susquehanna Financial Group LLLP upgraded the company on July 15 and said Weibo will expand to as many as 120 million users by 2012 from about 15 million to 20 million users in June.
Sina’s implied volatility, the key gauge of option prices, jumped 24 percent yesterday to a five-week high of 40.54 for at-the-money options expiring in 30 days. The shares climbed on volume of 3.2 million shares, almost quadruple the four-week average.
The October $48 calls jumped 135 percent to $1.20. A buyer at that price makes money if the shares climb 7.2 percent to $49.20 by expiration on Oct. 15. The shares haven’t closed above that level since June 2008.
Those calls changed hands 6,829 times yesterday, compared with an open interest of 145 contracts today. Most of the calls changed hands on the ask price, which indicates that buyers of new positions initiated most of today’s transactions.
“It’s interesting call buying,” said Ophir Gottlieb, a trader and head of client services at Livevol Inc., a San Francisco-based provider of options market analytics. “It looks like betting that the stock climbs to at least $50 within the next month.”
Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.