SINA recently reported their fiscal 2014 q1 earnings and the stock saw some heavy selling the following day. On Friday, the stock rebounded nicely and isn’t far from where it was before the report. We placed a slightly bullish structure in the name into earnings with the thought that the stock had the opportunity to put in a near term bottom after recent selling that included a pre-announcement. So how’s that structure look today? Here was the initial structure:
TRADE: SINA ($47.62) Bought May 23rd/ June 50 call spread for 1.00
-Sold to open May23rd 50 call at .66
-Bought to open June 50 call for 1.66
The May23rd calls that we were short expired worthless so now we’re left with the June 50 calls at a net cost of $1. The are currently trading at around that cost. We have a couple of trade management options here to discuss:
The first option would be to continue to roll the calendar to one of the weekly expirations in front of June regular. This week’s expiration are too cheap to bother, but the June6th 50 calls are worth around 40c, which could make sense.
The second option is to simply hold on to the June calls and look for an opportunity to sell on an up day. This is probably the strategy we like the most at this moment as it wouldn’t take much of a bounce towards $50 for the June 50 calls to be a nice winner.
If we get the sense that the stock could flatline at these levels we’d likely look to spread into the the weeklies. And if the stock looks like Friday’s rally was all it had and the recent lows are a threat, we’d likely sell the calls at a small loss.
So for now we’re sitting tight and what the stock does next will determine our management of the trade.
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New Trade – SINA: Away Weibo
SINA, the Chinese internet company is scheduled to report Q1 earnings tonight after the close. The options market is implying a one day move of about 6.5%, which is basically in line with the 4 qtr average of about 6.25% an, but well shy of the 8 qtr avg move of about 8.35%.
The one year chart is nothing short of a train-wreck, down 47% from the 2014 highs made in early January and down 43% on the year. The 3 year chart below shows the importance of the stock’s recent break below $50, with no real technical support until the low $40s:
Despite the stock’s poor performance, the recent consolidation has calmed options prices, with the 30 day at the money implied vol 15 points off the recent highs, and well below the levels prior to its last 3 earnings reports. While options prices are cheap relative to earnings prints past, they still remain fairly high and should come in another 20% following the report:
One logical reason for the sell off in IV since the start of the month was the company’s negative pre-announcement on May 2nd (here), which should take some mystery out of the report.
Our View: SINA recently spun out their Twitter-ish service called Weibo in a U.S. IPO, and the stock uncharacteristically has traded poorly since, despite Weibo (WB) up about 18% from last month’s IPO. Sentiment could not be worse towards the stock, taken together with the oversold nature of the chart you would have to “know something” to press the stock on the short side.
With a bit of the news out of the way, and the potential for mildly better guidance we like the idea of selling very short dated options (Friday) and buying longer-dated (June) and play for a bounce inline with the implied move.
TRADE: SINA ($47.62) Bought May 23rd/ June 50 call spread for 1.00
-Sold to open May23rd 50 call at .66
-Bought to open June 50 call for 1.66
Break-Even on May 23rd (Friday) expiration:
-Profits are maximized at 50 on May 23rd expiration. Slight moves above and below that strike are also profitable with big moves higher or lower putting the structure at risk of losses on expiration.
-Max risk is 1.00
THIS IS NOT A HIGH CONVICTION TRADE, BUT GIVEN POOR SENTIMENT AND TECHNICAL SET UP, WE LIKE THE RISK REWARD FOR A SMALL TRADE INTO THE PRINT.