Change text size

• Email This Article
• Print This Article
• Digg This
• Delicious
• Subscribe

In the past week, many Chinese stocks have once again caught the momentum bug. In large part, the move has government officials to thank after a two-thirds cut of an associated stock tax was announced. Since then, one stock that''s likely catching the eyes of growth traders as well as options strategists is China Mobile (CHL).  

China Mobile is a mega-capper telecom specialist that services China and Hong Kong. The stock trades as a listed-ADR on the NYSE, but shares are active with daily volume of more than three million. Per IBD, CHL maintains an EPS Rating of 95 and “A-” accumulation statistic. CHL is also on the radar of many traders as the most recent action has propelled CHL back onto the IBD 100.

Combined with a nearly six-month slightly deep cup and four days of consolidation work, a “handle” could be forming. Breakout traders using the “proper buy point” will want the current pattern to continue holding above its 50% retracement level near 84.50. Should that occur, recent highs plus .10, if triggered on stronger-than-normal volume could be viewed as a confirmed breakout. Many of those same directional strategists will also use a traditional 7% to 8% stop loss, should the stock move successfully through 90.12. On the other hand, option traders might already be seeing other less visible “buy points.”

Figure 1: China Mobile (CHL) Weekly Cup with Handle

For options traders, some positioning could already be in the works. In Tuesday’s session, more than 60,000 contracts traded, representing nearly 900% CHL’s daily average. Checking the board and front and near month activity in the calls were quite heavy. A cursory peek suggests some of that activity might be tied to a deep diagonal in the May 75’s and June 60’s, with no immediate deltas attached. That’s just an educated guess by this corner without rolling up the sleeves.

More interesting at this time or a trade which can be identified as being attractive, is some heavy September ATM activity. With implieds near 37%, premiums are near multi-month lows of a range that’s been as high as 70%. In conjunction with shorter and longer-term statistical volatility above the level being set by traders in the options, a buyer’s edge (.84 IV / SV ratio), whether it’s for directional or non-directional positioning, is currently offered.

Figure 2: China Mobile (CHL) Three Contract September Straddle

As for the September activity, my guess is the latter strategy or a long straddle was put up in CHL. If that were the case, roughly 3,000 spreads are betting on some strong movement and / or increasing implieds over the next few months. China Mobile might also be viewed as attractive for strategies like the long call, calendar or backspread based on the current options pricing. Above, I’ve posted what a three contract or 1/100^th version of what some smart, but smaller money could be involved in. Given the recent development for Chinese shares, CHL’s market heft and visibility with investors, growth factor, technical picture and current option pricing, that doesn’t sound too unreasonable a bet.  


Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum
 
The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

• Email This Article
• Print This Article
• Digg This
• Delicious
• Subscribe

Recent Articles by Chris Tyler, Optionetics.com

• October 7, 2008
  Midday Action: October 7
• October 6, 2008
  Growth Stock Swing Option: October 6, 2008
• October 6, 2008
  Midday Action: October 6
• October 3, 2008
  Weekly Outlook: October 6, 2008
• October 3, 2008
  Midday Action: October 3